form10k.htm

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STANDARD MICROSYSTEMS CORPORATION
	(Registrant)

	By:	/s/ KRIS SENNESAEL

		Kris Sennesael
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date: April 20, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

Signature	Title	Date

/s/ CHRISTINE KING	President and Chief Executive Officer	April 20, 2012
Christine King	(Principal Executive Officer) and Director

/s/ STEVEN J. BILODEAU	Chairman of the Board of Directors	April 20, 2012
Steven J. Bilodeau

/s/ ANDREW M. CAGGIA	Director	April 20, 2012
Andrew M. Caggia

/s/ TIMOTHY P. CRAIG	Director	April 20, 2012
Timothy P. Craig

/s/ JAMES A. DONAHUE	Director	April 20, 2012
James A. Donahue

/s/ PETER F. DICKS	Director	April 20, 2012
Peter F. Dicks

/s/ IVAN T. FRISCH	Director	April 20, 2012
Ivan T. Frisch

/s/ KENNETH KIN	Director	April 20, 2012
Kenneth Kin

/s/ STEPHEN C. MCCLUSKI	Director	April 20, 2012
Stephen C. McCluski

/s/ DR. GUENTER REICHART	Director	April 20, 2012
Dr. Guenter Reichart

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)(1)	Consolidated Financial Statements (See Item 8):
	Report of Independent Registered Public Accounting Firm	44
	Consolidated Balance Sheets as of February 29, 2012 and February 28, 2011	45
	Consolidated Statements of Operations for the three years ended February 29, 2012	46
	Consolidated Statements of Shareholders’ Equity for the three years ended February 29, 2012	47
	Consolidated Cash Flow Statements for the three years ended February 29, 2012	48
	Notes to Consolidated Financial Statements	49

(a)(2)	Financial Statement Schedules:
	Schedule II — Valuation and Qualifying Accounts	80

Schedules not listed above have been omitted because they are not applicable, not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

The consolidated financial statements and financial statement schedule listed in Section 1 and Section 2 of this Item 15, respectively, appear within this report immediately following the Index to Exhibits.

(a)(3)	Exhibits:
	Index to Exhibits	81

Exhibits, which are listed on the Index to Exhibits, are filed as part of this report and such Index to Exhibits is incorporated by reference.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Standard Microsystems Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Standard Microsystems Corporation and its subsidiaries at February 29, 2012 and February 28, 2011, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 29, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

April 20, 2012

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

As of February 29 and 28,	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	147,054		$	170,387
Accounts receivable, net of allowance for doubtful accounts of $355 and $325 at February 29, 2012 and February 28, 2011, respectively		50,986			64,714
Inventories		36,622			47,232
Deferred income taxes, net		15,773			31,156
Other current assets		15,010			8,047
Total current assets		265,445			321,536
Property, plant and equipment, net		64,423			67,382
Goodwill		114,433			77,273
Intangible assets, net		30,587			31,745
Long-term investments, net		25,680			29,490
Investments in equity securities		2,042			2,042
Deferred income taxes, net		7,781			6,074
Other assets		3,595			3,550
TOTAL ASSETS	$	513,986		$	539,092

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,677		$	27,171
Deferred income from distribution		18,449			16,167
Accrued expenses and other liabilities		61,492			72,459
Total current liabilities		98,618			115,797
Deferred income taxes		-			4,519
Other liabilities		21,001			21,869

Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.10 par value, authorized 1,000 shares, none issued		-			-
Common stock, $0.10 par value; 85,000 shares authorized; 28,127 and 27,487 shares issued and 22,246 and 22,983 shares outstanding, as of February 29, 2012 and February 28, 2011, respectively		2,813			2,749
Additional paid-in capital		380,501			359,790
Retained earnings		137,953			127,291
Cost of treasury stock (5,881 and 4,504 shares as of February 29, 2012 and February 28, 2011, respectively		(132,384	)		(101,411	)
Accumulated other comprehensive income		5,484			8,488
Total shareholders’ equity		394,367			396,907
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	513,986		$	539,092

The accompanying notes are an integral part of these consolidated financial statements.

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

For the Fiscal Years Ended February 29 and 28,	2012			2011			2010
Product sales	$	407,029		$	407,396		$	307,068
Intellectual property and other revenues		5,075			2,083			710
Sales and revenues		412,104			409,479			307,778
Costs of goods sold		196,446			194,585			154,872
Gross profit on sales and revenues		215,658			214,894			152,906
Operating expenses:
Research and development		100,350			96,370			77,702
Selling, general and administrative		86,706			100,661			85,049
Acquisition termination fee gain		-			(7,700	)		-
Restructuring charges		1,973			4,703			2,123
Impairment loss on equity investment (Symwave)		-			3,208			-
Gain on equity investment (Canesta)		-			(320	)		-
Revaluation of contingent consideration		(1,365	)		(4,206	)		-
Impairment losses on intangible assets (Symwave)		-			3,531			-
Settlement charge		-			-			2,019
Income (loss) from operations		27,994			18,647			(13,987	)

Interest income		301			659			981
Interest expense		(155	)		(153	)		(163	)
Other income (expense), net		86			(248	)		(514	)
Income (loss) before income taxes		28,226			18,905			(13,683	)

Provision for (benefit from) income taxes		17,564			8,278			(5,705	)
Net income (loss)	$	10,662		$	10,627		$	(7,978	)

Net income (loss) per share:
Basic	$	0.47		$	0.47		$	(0.36	)
Diluted	$	0.46		$	0.46		$	(0.36	)

Weighted average common shares outstanding:
Basic		22,695			22,667			22,133
Diluted		23,203			23,108			22,133

The accompanying notes are an integral part of these consolidated financial statements

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

(in thousands)

	Common Stock				Additional Paid- in Capital			Retained Earnings			Treasury Stock						Accumulated Other Comprehensive (Loss) Income			Total
	Shares		Amount								Share			Amount						Amount
Balance at February 28, 2009		26,416	$	2,642	$	325,596		$	124,642			(4,495	)	$	(101,199	)	$	(2,873	)	$	348,808
Comprehensive income (loss):
Net loss		-		-		-			(7,978	)		-			-			-			(7,978	)
Other comprehensive income (loss)
Change in pension liability		-		-		-			-			-			-			(237	)		(237	)
Change in unrealized loss on investments		-		-		-			-			-			-			3,459			3,459
Foreign currency translation adjustment		-		-		-			-			-			-			2,427			2,427
Total other comprehensive loss																				$	5,649
Total comprehensive loss																				$	(2,329	)
Issuance of common stock for business acquisition		110		11		2,306			-			-			-			-			2,317
Stock options exercised		253		25		4,218			-			-			-			-			4,243
Excess tax benefit from employee stock plans		-		-		(574	)		-			-			-			-			(574	)
Stock-based compensation		104		10		9,413			-			-			-			-			9,423
Balance at February 28, 2010		26,883	$	2,688	$	340,959		$	116,664			(4,495	)	$	(101,199	)	$	2,776		$	361,888
Comprehensive loss:
Net income		-		-		-			10,627			-			-			-			10,627
Other comprehensive income ( loss):
Change in pension liability		-		-		-			-			-			-			(373	)		(373	)
Change in unrealized loss on investments		-		-		-			-			-			-			1,712			1,712
Foreign currency translation adjustment		-		-		-			-			-			-			4,373			4,373
Total other comprehensive income																				$	5,712
Total comprehensive loss																				$	16,339
Issuance of common stock for business acquisitions		2		-		-			-			-			-			-			-
Stock options exercised		519		52		9,739			-			-			-			-			9,791
Excess tax benefit from employee stock plans		-		-		(1,345	)		-			-			-			-			(1,345	)
Stock-based compensation		83		9		10,437			-			-			-			-			10,446
Purchases of treasury stock		-		-		-			-			(8	)		(212	)		-			(212	)
Balance at February 28, 2011		27,487	$	2,749	$	359,790		$	127,291			(4,503	)	$	(101,411	)	$	8,488		$	396,907
Comprehensive income:
Net income		-		-		-			10,662			-			-			-			10,662
Other comprehensive income:
Change in pension liability		-		-		-			-			-			-			(395	)		(395	)
Change in unrealized loss on investments		-		-		-			-			-			-			(182	)		(182	)
Foreign currency translation adjustment		-		-		-			-			-			-			(2,427	)		(2,427	)
Total other comprehensive income																				$	(3,004	)
Total comprehensive income																				$	7,658
Issuance of common stock for business acquisition		21		2		518			-			-			-			-			520
Stock options exercised		440		44		7,656			-			-			-			-			7,700
Excess tax benefit from employee stock plans		-		-		(289	)		-			-			-			-			(289	)
Stock-based compensation		179		18		12,826			-			-			-			-			12,844
Purchases of treasury stock		-		-		-			-			(1,378	)		(30,973	)		-			(30,973	)
Balance at February 29, 2012		28,127	$	2,813	$	380,501		$	137,953			(5,881	)	$	(132,384	)	$	5,484		$	394,367

The accompanying notes are an integral part of these consolidated financial statements

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

(in thousands)

For the Fiscal Years Ended February 29 and 28,	2012			2011			2010
Cash flows from operating activities:
Net income (loss)	$	10,662		$	10,627		$	(7,978	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		30,424			25,518			25,354
Impairment losses		-			6,739			-
Foreign exchange loss (gain)		340			(520	)		88
Excess tax benefits from stock-based compensation		(264	)		(299	)		(100	)
Stock-based compensation		7,884			24,106			17,602
Deferred income taxes		9,573			(2,007	)		(10,065	)
Loss (gain) on sales of property, plant and equipment		63			(14	)		(70	)
Deferred income on shipments to distributors		2,277			42			4,356
Non cash restructuring charges		73			1,044			336
Provision for (recoveries of) sales returns and allowances		155			(106	)		(41	)
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable		14,887			(12,664	)		(19,337	)
Inventories		11,598			914			10,513
Accounts payable, accrued expenses and other liabilities		(16,968	)		(8,746	)		15,890
Accrued restructuring charges		(2,093	)		1,730			(4,294	)
Income taxes receivable and payable		(4,851	)		(3,322	)		6,532
Other changes, net		(2,708	)		1,933			1,167
Net cash provided by operating activities		61,052			44,975			39,953
Cash flows from investing activities:
Capital expenditures		(11,706	)		(12,396	)		(8,616	)
Purchase of technology patent rights		-			-			(1,200	)
Acquisition of business, net of cash acquired (Symwave)		-			1,517			-
Acquisition of business, net of cash acquired (STS)		-			(21,891	)		-
Acquisition of business, net of cash acquired (Kleer)		-			-			(5,176	)
Acquisition of business, net of cash acquired (Tallika)		-			-			(1,825	)
Acquisition of business, net of cash acquired (K2L)		-			-			(5,277	)
Acquisition of business, net of cash acquired (BridgeCo)		(40,968	)		-			-
Investments in non-marketable debt securities (Symwave)		-			(3,125	)		-
Proceeds from sale of non-marketable equity investment (Canesta)		-			2,320			-
Investment in non-marketable equity investments (Symwave, Canesta and EqcoLogic)		-			(2,042	)		(7,238	)
Purchases of short-term and long-term investments		-			(14,900	)		(32,275	)
Sales and maturities of short-term and long-term investments		3,628			60,617			31,525
Net cash (used in) provided by investing activities		(49,046	)		10,100			(30,082	)
Cash flows from financing activities:
Excess tax benefits from stock-based compensation		264			299			100
Proceeds from issuance of common stock		7,700			9,791			4,243
Purchases of treasury stock		(30,973	)		(212	)		-
Payments of contingent consideration		(5,752	)		-			-
Repayments of obligations under supplier financing arrangements		(7,288	)		(4,382	)		(3,955	)
Net cash (used in) provided by financing activities		(36,049	)		5,496			388
Effect of foreign exchange rate changes on cash and cash equivalents		710			675			1,726
Net (decrease) increase in cash and cash equivalents		(23,333	)		61,246			11,985
Cash and cash equivalents at beginning of year		170,387			109,141			97,156
Cash and cash equivalents at end of year	$	147,054		$	170,387		$	109,141

The accompanying notes are an integral part of these consolidated financial statements

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Standard Microsystems Corporation and Subsidiaries (collectively “SMSC “ or the “Company”) designs and sells a wide range of silicon-based integrated circuits that utilize analog and mixed-signal technologies. The Company’s integrated circuits and systems provide a wide variety of signal processing attributes that are incorporated by its globally diverse customers into numerous end products in the PC, Consumer Electronics, Industrial and Automotive markets. These products generally provide connectivity, networking, or input/output control solutions for a variety of high-speed communication, computer and related peripheral, consumer electronics, industrial control systems or automotive information applications. The market for these solutions is increasingly diverse, and the Company’s technologies are increasingly used in various combinations and in alternative applications.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Company’s fiscal year ends on the last calendar day of February (referred to as “fiscal”). The consolidated financial statements include the accounts of the Company and its subsidiaries (all wholly-owned) after elimination of all intercompany accounts and transactions.

Reclassifications

Certain items in the fiscal year 2010 consolidated financial statements have been reclassified to conform to the fiscal 2012 and 2011 presentation reflected in these consolidated financial statements. Specifically, the Company reclassified a negligible amount in amortization of technology intangibles previously included in selling, general and administrative costs to cost of goods sold on the consolidated statements of operations for fiscal 2010 to conform to the current period presentation.

Out-of-Period Adjustment

Gross profit and operating results for fiscal 2010 include a credit to cost of goods sold of approximately $1.0 million for the reduction of accounts payable related to an unreconciled amount within inventory received not invoiced to correct a cumulative error from prior periods. This adjustment was recorded in the fourth quarter of fiscal 2010.

The Company does not believe that this adjustment noted above was material to the consolidated financial statements for the periods in which the error originated and in which it was corrected and thus has not restated its consolidated financial statements for this period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company bases estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist principally of cash in banks, money market account balances or other highly liquid instruments purchased with original maturities of three months or less.

Long-term Investments

Long-term investments consist of highly rated auction rate securities (most of which are backed by U.S. Federal or state and municipal government guarantees) and other marketable debt with remaining maturities of greater than one year and equity securities held as available-for-sale investments. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that were, until February 2008, reset through a “Dutch auction” process. In the fourth quarter of fiscal 2008, such investments became subject to adverse market conditions, and the liquidity typically associated with the financial markets for such instruments became restricted as auctions began to fail. As such, the Company has classified its investments in auction rate securities as long-term. Considering such determination on market conditions, the high quality of these investments (and underlying guarantees) and given the Company has adequate cash, working capital and cash flow from operations to meet current operating needs, management has determined that impairment of these investments is not other than temporary at this time. Given the circumstances, these securities were subsequently classified as long-term (or short-term if stated maturity dates were within one year of the reported balance sheet date), reflecting the restrictions on liquidity and the Company’s intent to hold until maturity (or until such time as the principal investment could be recovered through other means, such as issuer calls and redemptions). Management will continue to monitor market conditions, and may deem that impairment is other than temporary if market conditions do not improve in the foreseeable future or if the credit quality of the underlying issuer deteriorates. The Company is currently liquidating such investments as opportunities arise.

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Accounts Receivable, Revenue Recognition and Deferred Income from Distribution

The Company’s accounts receivable result from trade credit extended on shipments to original equipment manufacturers, original design manufacturers and electronic component distributors. The Company can have individually significant accounts receivable balances from its larger customers. At February 29, 2012 and February 28, 2011, one customer accounted for more than 10 percent of gross accounts receivable, with a combined balance totaling $9.8 million and $27.4 million, respectively. The Company manages its concentration of credit risk on accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and limiting the extension of credit when deemed necessary. In addition, although the Company generally does not request collateral in advance of shipment, prepayments or standby letters of credit may be required and have been obtained in certain circumstances, and the Company has bought third-party credit insurance policies with respect to certain customers to reduce credit concentration exposure. The Company maintains an allowance for potential credit losses, taking into consideration the overall quality and aging of the accounts receivable portfolio and specifically identified customer risks.

The Company recognizes sales from product shipments to original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and direct customers at the time of shipment, net of appropriate reserves for product returns and allowances. The Company’s terms of shipment are customarily ex-works (at SMSC warehouse) or CIP (carriage and insurance paid).

Certain of the Company’s products are sold to electronic component distributors under agreements providing for price protection and rights to return unsold merchandise. Accordingly, recognition of revenue and associated gross profit on shipments to a majority of the Company’s distributors is deferred until the distributors resell the products. At the time of shipment to distributors, the Company records a trade receivable for the selling price, relieves inventory for the carrying value of goods shipped, and records the gross margin as deferred income from distribution on the consolidated balance sheets. This deferred income represents the gross margin on the initial sale to the distributor; however, the amount of gross margin recognized in future consolidated statements of operations will typically be less than the originally recorded deferred income as a result of price allowances. Price allowances offered to distributors are recognized as reductions in product sales when incurred, which is generally at the time the distributor resells the product. Shipments made by the Company’s Japanese subsidiary to distributors in Japan are made under agreements that permit limited stock return and no price protection privileges. Revenue for shipments to distributors in Japan is recognized as title passes to such distributors upon delivery.

Deferred income on shipments to distributors consists of the following (in thousands ):

	February 29, 2012			February 28, 2011
Deferred sales revenue	$	26,488		$	26,609
Deferred COGS		(4,759	)		(4,904	)
Provisions for sales returns		589			757
Distributor advances for price allowances		(3,869	)		(6,295	)
	$	18,449		$	16,167

The Company recognizes intellectual property revenues upon notification of sales of the licensed technology by its licensees, absent any other contractual contingencies which might impact the extent and timing of payment. The terms of the Company’s licensing agreements generally require licensees to give notification to the Company and to pay royalties no later than 60 days after the end of the quarter in which the sales take place.

Inventories and Costs of Goods Sold

Inventories are valued at the lower of cost (on a first-in, first-out basis) or market. The Company establishes inventory allowances for estimated obsolescence or unmarketable inventory for the difference between the cost of inventory and estimated fair value based upon assumptions about future demand and market conditions.

Costs of goods sold includes the cost of inventory, shipping and handling costs borne by the Company in connection with shipments to customers, royalties associated with certain products and depreciation on productive assets (principally, test equipment and facilities). Costs of goods sold also include amortization of acquired product technologies. Such amortization totaled the following amounts (in thousands):

For the Fiscal Years Ended February 29 and 28		2012				2011				2010
Product Technology Amortization		$	6,984			$	5,431			$	4,321

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Property, Plant and Equipment

Property, plant and equipment are carried at cost and depreciated on a straight-line basis over the estimated useful lives of buildings and leasehold improvements (2 to 25 years), machinery and equipment (3 to 7 years) and computer systems and software (2 to 7 years). Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the Company’s consolidated statements of operations.

Depreciation expense related to property, plant and equipment was as follows (in thousands):

For the Fiscal Years Ended February 29 and 28		2012				2011				2010
Depreciation expense		$	20,156			$	17,053			$	19,083

Investments in Equity Securities

The Company considers the guidance in ASC Topic 325, “Investments – Other” (“ASC 325”) and ASC Topic 810, “Consolidation” (“ASC 810”) in determining the appropriate accounting treatment for investments in equity securities representing less than a controlling interest in the related entities. Such investments are carried at cost, unless facts and circumstances indicate that either (i) the Company has significant influence over the operations of the investment and therefore accounts for the investment under the equity method or (ii) consolidation of the related business is warranted, as may be the case if such entities were deemed to be a variable interest entity. The cost of such investments is reflected in the Investments in equity securities caption of the Company's consolidated balance sheets, and are periodically reviewed for indications of impairment in value. The cost basis of any investment for which potential indications of impairment exist that were deemed other than temporary would be reduced accordingly, with a charge to results of operations.

Goodwill and Intangible Assets

Goodwill is recorded as the difference, if any, between the aggregate fair value of consideration exchanged for an acquired business and the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. In accordance with ASC Topic 350, “ Intangibles — Goodwill and Other” (“ASC 350”), goodwill and intangibles with indefinite lives are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Intangible assets with finite useful lives are amortized over their estimated useful lives and are reviewed for impairment when indicators of impairment, such as reductions in demand, are present. The Company conducts annual reviews for goodwill and indefinite-lived intangible assets in the fourth quarter of each fiscal year. All finite-lived intangible assets are being amortized on a straight-line basis, which approximates the pattern in which the estimated economic benefits of the assets are realized, over their estimated useful lives.

For goodwill impairment testing purposes, the Company has three reporting units: the automotive reporting unit, the wireless audio reporting unit and the analog/mixed signal reporting unit. The automotive unit consists primarily of those portions of the business that were acquired in the March 30, 2005 acquisition of OASIS including the infotainment networking technology known as Media Oriented Systems Transport (“MOST”). The automotive unit also includes those portions of the business that were acquired in the November 5, 2009 acquisition of K2L. The wireless audio unit consists of those portions of the business that were acquired in the May 19, 2011 acquisition of BridgeCo, the February 16, 2010 acquisition of Kleer and the June 14, 2010 acquisition of STS. The analog/mixed signal reporting unit is comprised of the remaining portions of the business, which includes portions of the business remaining from the November 12, 2010 acquisition of Symwave.

The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting units is less than its carrying value. If, based on that assessment, the Company believes it is more likely than not that the fair value of its reporting units is less than its carrying value, a two-step goodwill impairment test is performed. If the two-step goodwill impairment test is considered necessary, the Company considers both the market and income approaches in determining the estimated fair value of the reporting units, specifically the market multiple methodology and discounted cash flow methodology. The market multiple methodology involves the utilization of various revenue and cash flow measures at appropriate risk-adjusted multiples. Multiples are determined through an analysis of certain publicly traded companies that are selected on the basis of operational and economic similarity with the business operations. Provided these companies meet these criteria, they will be considered comparable from an investment standpoint even if the exact business operations and/or characteristics of the entities are not the same. Revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples are calculated for the comparable companies based on market data and published financial reports. A comparative analysis between the Company and the public companies deemed to be comparable form the basis for the selection of appropriate risk-adjusted multiples for the Company. The comparative analysis incorporates both quantitative and qualitative risk factors which relate to, among other things, the nature of the industry in which the Company and other comparable companies are engaged. In the discounted cash flow methodology, long-term projections prepared by the Company are utilized. The cash flows projected are analyzed on a “debt-free” basis (before cash payments to equity and interest bearing debt investors) in order to develop an enterprise value. A provision, based on these projections, for the value of the Company at the end of the forecast period, or terminal value, are also made. The present value of the cash flows and the terminal value are determined using a risk-adjusted rate of return, or “discount rate.”

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Impairments

Long-lived Assets

The Company assesses the recoverability of long-lived assets, including property, plant and equipment and definite-lived intangible assets, whenever events or changes in circumstances indicate that future undiscounted cash flows expected to be generated by an asset’s disposition or use may not be sufficient to support its carrying value. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized upon completion of such assessment to reduce the carrying value of the long-lived asset to its estimated fair value.

Goodwill

Goodwill is tested for impairment in value annually as of the last day in the Company’s fiscal year, as well as when events or circumstances indicate possible impairment in value. The Company performs an annual goodwill impairment test for each of its three reporting units (automotive, wireless audio, and analog/mixed signal) during the fourth quarter of each fiscal year. The Company completed its most recent annual goodwill impairment test during the fourth quarter of fiscal 2012 for each of its three reporting units. Upon completion of the fiscal 2012 assessment, it was determined that no impairment in value was identified.

Intangible Assets

Indefinite-lived intangible assets are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. During the fourth quarter of fiscal 2011, the Company lost its primary customer in its storage solutions business. As a result, the Company initiated a plan to reduce costs and investments in this business. In connection with this action, the Company incurred an impairment loss of $3.5 million, primarily for certain indefinite-lived purchased technologies acquired as part of this business. The fair value of the Symwave purchased technologies was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, which is a Level 3 input. Key assumptions include a discount rate of 15 percent and a probability-adjusted level of annual revenues.

Acquisition Termination Fee Gain

On January 9, 2011, the Company and Conexant Systems, Inc. (“Conexant”) entered into an Agreement and Plan of Merger (“Merger Agreement”). The agreement was terminated by Conexant pursuant to the terms and conditions specified in the Merger Agreement on February 23, 2011. As a result, Conexant paid SMSC a termination fee of $7.7 million which was recorded within income from operations in fiscal year 2011.

Foreign Currency

Translation of Foreign Currencies

The functional currencies of the Company’s foreign subsidiaries are their respective local currencies. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Beginning in the third quarter of fiscal 2010, results of operations are translated using the average exchange rates during the period. Prior to the third quarter of fiscal 2010, results of operations were translated using the daily spot rate on the date the transaction is posted. The impact of this change on results of operations was not material. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within shareholders’ equity.

Foreign Exchange Contracts

The majority of the Company’s revenues, expenses and capital expenditures are transacted in U.S. dollars. However, the Company does transact business in other currencies, primarily the Japanese Yen and the Euro. From time to time, the Company has entered into forward currency exchange contracts to hedge against the impact of currency fluctuations on transactions not denominated in the functional currency of the transacting entity. The intent of these contracts is to offset foreign currency transaction gains and losses with gains and losses on the forward contracts, so as to help mitigate the risks associated with currency exchange rate fluctuations. The Company does not enter into forward currency exchange contracts solely for speculative or trading purposes. Gains and losses on such contracts have not been significant.

Accumulated Other Comprehensive Income

The Company’s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, unrealized gains and losses on investments classified as available-for-sale, and changes in minimum pension liability adjustments.

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The components of the Company’s accumulated other comprehensive income as of February 29, 2012, February 28, 2011, and February 28, 2010, net of taxes were as follows (in thousands):

	2012			2011			2010
Unrealized losses on investments (net of tax of $49, $46, and $86 as of February 29, 2012, February 28, 2011, and February 28, 2010, respectively)	$	(2,046	)	$	(1,864	)	$	(3,576	)
Foreign currency translation		8,340			10,767			6,394
Minimum pension liability adjustment (net of tax of $517, $244, and $30 as of February 29, 2012, February 28, 2011, and February 28, 2010, respectively)		(810	)		(415	)		(42	)
Accumulated other comprehensive income	$	5,484		$	8,488		$	2,776

Income Taxes

The Company accounts for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision involves the application of complex tax laws and requires significant judgment and estimates. We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more likely than not realizable, we establish a valuation allowance.

The Company applies ASC 740, “Income Taxes” (“ASC 740”) in the accounting for uncertainty in income taxes recognized in its financial statements. ASC 740 requires that all tax positions be evaluated using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. The Company believes that its accruals for uncertain tax positions are adequate for all open audit years based on its assessment of many factors including past experience and interpretation of tax law. To the extent that new information becomes available which causes the company to change its judgment about the adequacy of its accruals for uncertain tax positions, such changes will impact income tax expense in the period such determination is made. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.(see Note 10).

Contingencies

The Company regularly and routinely evaluates risks and exposures existing in the business, and either discloses such matters or records liabilities for such exposures as warranted, following the guidance set forth in ASC 450, “Accounting for Contingencies” (“ASC 450”). In connection with any such evaluation, the Company also considers estimated legal fees (if applicable) associated with such matters in determining amounts to be accrued.

Stock-Based Compensation (Share-Based Payment)

The Company has several stock-based compensation plans in effect under which incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) are granted to employees and directors. After amendment on July 28, 2011 the maximum number of shares that may be delivered pursuant to awards granted under the Long Term Incentive Plan (“LTIP”) is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 share equivalents. The Company has ceased issuing stock options and restricted stock awards under previously established stock option and restricted stock plans, and has ceased issuing SARs, and instead is using the LTIP to issue stock options and RSUs. Stock options are granted with exercise prices equal to the fair value of the underlying shares on the date of grant. New shares are issued in settling stock option exercises and restricted stock units.

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Share-based payments to employees, including grants of employee stock options, RSAs, RSUs and SARs, are recognized in the financial statements based on their respective grant date fair values. The Company recognizes compensation expense for SARs using a graded vesting methodology, adjusting for changes in fair value from period to period. In addition, benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow.

The Black-Scholes option pricing model is used for estimating the fair value of options and SARs granted and corresponding compensation expense to be recognized. The Black-Scholes model requires certain assumptions, judgements and estimates by the Company to determine fair value, including expected stock price volatility, risk-free interest rate and expected term. The Company based the expected volatility on historical volatility. The Company based the expected term of options granted using the midpoint scenario, which combines historical exercise data with hypothetical exercise data. The expected term of each individual SAR award is assumed to be the midpoint of the remaining term through expiration as of any remeasurement date. Share-based compensation related to RSAs and RSUs is calculated based on the market price of the Company’s common stock on the date of grant.

The following table summarizes the stock-based compensation expense for stock options, RSAs, RSUs, employee stock purchase plan shares and SARs included in results of operations (in thousands) :

	Fiscal
	2012		2011		2010
Costs of goods sold	$	662	$	2,710	$	1,629
Research and development		2,487		6,919		4,571
Selling, general and administrative		5,055		14,574		9,770
Stock-based compensation, before income tax benefit	$	8,204	$	24,203	$	15,970
Tax benefit		3,035		8,713		5,749
Stock-based compensation, after income tax benefit	$	5,169	$	15,490	$	10,221

The amounts above exclude $1.8 million, $2.0 million and $1.9 million of expense related to the 401K match in stock issued in fiscal 2012, 2011 and 2010, respectively.

Warranty Costs

The Company generally warrants its products against defects in materials and workmanship and non-conformance to specifications for varying lengths of time, typically twelve to twenty-four months. The majority of the Company’s product warranty claims are settled through the return of defective product and shipment of replacement product. Warranty returns are included within the Company’s allowance for returns, which is based on historical return rates. Actual future returns could differ from the allowance established. In addition, the Company accrues a liability for specific warranty costs expected to be settled other than through product return and replacement, if a loss is probable and can be reasonably estimated. Product warranty expenses during fiscal 2012, 2011 and 2010 were not material.

Research and Development

Research and development (“R&D”) expenses consist primarily of salaries and related costs of employees engaged in research, design and development activities, costs related to engineering design tools and computer hardware, subcontractor costs and device prototyping costs. The Company’s R&D activities are performed by highly-skilled and experienced engineers and technicians, and are primarily directed towards the design of new integrated circuits; the development of new software drivers, firmware and design tools and blocks of logic; and investment in new product offerings based on converging technology trends, as well as ongoing cost reductions and performance improvements in existing products. Costs for research and development activities are generally expensed in the period incurred.

Advertising Expense

Advertising costs are expensed in the period incurred and are not material to the results of operations in any of the periods presented.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average common shares outstanding during the period plus the dilutive effect (if any) of shares issuable through stock options and RSUs as estimated using the treasury stock method. Shares used in calculating basic and diluted net income (loss) per share are reconciled as follows (in thousands) :

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For the Fiscal Years Ended February 29 and 28,	2012		2011		2010
Weighted average shares outstanding for basic net income (loss) per share		22,695		22,667		22,133
Dilutive effect of stock options and RSUs		508		441		-
Weighted average shares outstanding for diluted net income (loss) per share		23,203		23,108		22,133

For fiscal 2012, 2011, and 2010, stock options and RSUs covering approximately 1,697,747, 1,417,102 and 3,572,000 common shares, respectively, were excluded from the computation of diluted net income per share because their effects were anti-dilutive.

Business Combinations

The Company accounts for business combinations under the acquisition method and allocates total purchase price for acquired businesses to the tangible and identified intangible assets acquired and liabilities assumed, based on estimated fair values. When a business combination includes the exchange of SMSC common stock, the value of the SMSC common stock was determined using the closing market price as of the date such shares were tendered to the selling parties. The excess purchase price over those fair values is recorded as goodwill. The fair values assigned to tangible and identified intangible assets acquired and liabilities assumed are based on management estimates and assumptions that utilize established valuation techniques appropriate for the semiconductor industry and each acquired business. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date. In determining the fair value of such contingent consideration, management estimates the amount to be paid based on probable outcomes and expectations on financial performance of the related acquired business. The fair value of contingent consideration is reassessed quarterly, with any change in expected value charged to results of operations. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in discount periods, discount rates and probabilities that contingencies will be met.

Fair Value of Financial Instruments

The Company’s financial instruments are measured and recorded at fair value. The carrying amounts of the Company’s financial instruments approximate fair value due to their short maturities. Financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts receivable, accounts payable and accrued expenses and other liabilities. The Company’s non-financial instruments (including: goodwill; intangible assets; and, property, plant and equipment) are measured at fair value when acquired or when there is an impairment charge recognized.

Fair Value Measurements

In September 2006, the FASB issued a new standard for fair value measurement now codified as ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, management considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

In January 2010, the FASB issued new standards in the FASB Accounting Standards Codification 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standards also clarify existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. The new disclosures regarding Level 1 and 2 fair value measurements and clarification of existing disclosures were adopted by SMSC beginning in the first quarter of fiscal 2011. The adoption of ASC 820 did not have a material effect on our consolidated financial statements.

This pronouncement requires disclosure regarding the manner in which fair value is determined for assets and liabilities and establishes a three-tiered value hierarchy into which these assets and liabilities are grouped, based upon significant inputs as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs.

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The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, short-term and long-term investments (including auction rate securities) and accounts receivable. The Company invests its cash in bank accounts and money market accounts with major financial institutions, in U.S. Treasury and agency obligations, and in debt securities of corporations and agencies with high credit quality. By policy, the Company seeks to limit credit exposure on investments through diversification and by restricting its investments to highly rated securities.

Excess Tax Benefits from Stock-Based Compensation

The Company reported excess tax benefits from stock-based compensation of $0.3 million, $0.3 million and $0.1 million in the consolidated cash flow statements and $0.3 million, $1.3 million and $0.6 million in the consolidated statements of shareholders' equity for fiscal 2012, 2011 and 2010, respectively. The difference in these amounts is attributable to the method of adopting ASC 718 ("ASC 718") on March 1, 2006. Under the provisions of ASC 718, the Company elected to recognize stock-based compensation cost using the modified prospective transition method. Under this method, the Company recognized stock-based compensation cost, including deferred taxes, for all employee stock-based instruments issued or vested after February 28, 2006. No compensation cost or deferred taxes were recorded for employee stock-based instruments that vested on or before February 28, 2006. As a result, all tax benefits from employee stock-based instruments that vested on or before February 28, 2006 are recorded as an increase to additional paid-in capital. Excess tax benefits related to employee stock-based instruments issued or vested after February 28, 2006 result in an increase or decrease to additional paid-in capital or an increase to income tax expense based upon the difference between the amount of stock-based compensation cost reported on the tax return as compared to the consolidated financial statements and the cumulative balance of tax benefits recorded in additional paid-in capital.

Recent Accounting Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011 - 08, “Testing Goodwill for Impairment” (“ASU 2011 - 08”), which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The updated guidance is effective for annual impairment tests performed for SMSC beginning in Fiscal 2013 with early adoption permitted. The Company has elected to early adopt ASU 2011 - 08 in connection with its fiscal 2012 impairment analysis. The adoption of this guidance had no impact on our consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011 - 05, “Presentation of Comprehensive Income” (“ASU 2011 - 05”), which provides guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-12, “ Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), which defers requirements regarding reclassifications of items out of comprehensive income on the face of the income statement while retaining other requirements of ASU 2011-05. The updated guidance in ASU 2011 – 05 and ASU 2011 – 12 is effective for SMSC beginning in the first quarter of fiscal year 2013. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update 2011 - 04, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011 - 04”), which provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for SMSC beginning in the first quarter of fiscal year 2013. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010 - 29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010 - 29”), which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The new disclosures required by ASU 2010 – 29 were adopted by SMSC beginning in the first quarter of fiscal 2012. The adoption of ASU 2010 - 29 did not have a material effect on our consolidated financial statements.

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3. FAIR VALUE MEASUREMENTS

The following table summarizes the composition of the Company’s investments at February 29, 2012 and February 28, 2011 (in thousands):

								Classification on Balance Sheet
February 29, 2012	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash		Long-Term Investments
Auction rate securities	$	27,775	$	(2,095	)	$	25,680	$	-	$	25,680
Money market funds		16,834		-			16,834		16,834		-
	$	44,609	$	(2,095	)	$	42,514	$	16,834	$	25,680

								Classification on Balance Sheet
February 28, 2011	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash		Long-Term Investments
Auction rate securities	$	31,400	$	(1,910	)	$	29,490	$	-	$	29,490
Money market funds		134,007		-			134,007		134,007		-
	$	165,407	$	(1,910	)	$	163,497	$	134,007	$	29,490

As of February 29, 2012, the Company held approximately $25.7 million (net of $2.1 million in gross unrealized losses) of investments in auction rate securities with maturities ranging from 9 to 29 years, all classified as available-for-sale. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that were, until February 2008, reset through a “Dutch auction” process. As of February 29, 2012, 100 percent of the Company’s auction rate securities were “AAA” rated by one or more of the major credit rating agencies.

The cost basis and fair values of available-for-sale securities at February 29, 2012 by contractual maturity are shown below (in thousands):

	Cost		Estimated Fair Value
Due in one year or less	$	-	$	-
Due in one year through five years		-		-
Due in five years through ten years		6,100		5,614
Due in ten through twenty years		5,450		5,056
Due in over twenty years		16,225		15,010
Total	$	27,775	$	25,680

Expected maturities of securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

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The following tables detail the fair value measurements within the three levels of fair value hierarchy of the Company’s financial assets, including investments, equity securities, cash surrender value of life insurance policies and cash equivalents at February 29, 2012 and February 28, 2011 (in thousands):

	Total Fair Value at 2/29/2012		Level 1		Level 2		Level 3

Assets:
Auction rate securities	$	25,680	$	-	$	-	$	25,680
Money market funds		16,833		16,833		-		-
Other assets-cash surrender value		1,650		-		1,650		-
Total Assets	$	44,163	$	16,833	$	1,650	$	25,680

Liabilities:
Contingent consideration	$	4,251	$	-	$	-	$	4,251
Total Liabilities	$	4,251	$	-	$	-	$	4,251

	Total Fair Value at 2/28/2011		Level 1		Level 2		Level 3

Assets:
Auction rate securities	$	29,490	$	-	$	-	$	29,490
Money market funds		134,007		134,007		-		-
Other assets-cash surrender value		1,666		-		1,666		-
Total Assets	$	165,163	$	134,007	$	1,666	$	29,490

Liabilities:
Contingent consideration	$	2,778	$	-	$	-	$	2,778
Total Liabilities	$	2,778	$	-	$	-	$	2,778

At February 29, 2012 and February 28, 2011, the Company grouped money market funds using a Level 1 valuation because market prices are readily available. Level 2 financial assets and liabilities represent the fair value of cash surrender value of life insurance policies. The assets grouped for Level 3 valuation were auction rate securities consisting of AAA rated securities mainly collateralized by student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program (“FFELP”), as well as auction rate preferred securities ($6.1 million at par) which are AAA rated and part of a closed end fund that must maintain an asset ratio of 2 to 1. Level 3 liabilities consist of contingent consideration on acquisitions. See Note 15 — Commitments and Contingencies, for further discussion on contingent consideration arrangements, including fair value inputs.

When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs.

The following table reflects the activity for the Company’s major classes of assets and liabilities (contingent acquisition expense) measured at fair value using Level 3 inputs (in thousands):

Assets:	Three Months Ended February 29, 2012			Twelve Months Ended February 29, 2012
Balance at beginning of period	$	26,262		$	29,490
Transfers out to Level 2 (Auction Rate Securities with market inputs)		-			(1,100	)
Sales of Level 3 investments		(478	)		(2,528	)
Unrealized losses included in accumulated other comprehensive income		(104	)		(182	)
Balance as of February 29, 2012	$	25,680		$	25,680

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Liabilities:	Three Months Ended February 29, 2012			Twelve Months Ended February 29, 2012
Balance at beginning of period	$	8,632		$	2,778
Level 3 liabilities acquired		-			8,800
Level 3 liabilities settled		(4,519	)		(5,909	)
Total (gains) and losses:
Included in earnings (realized)		126			(1,365	)
Unrealized losses (gains) included in accumulated other comprehensive income		12			(53	)
Balance as of February 29, 2012	$	4,251		$	4,251

The par (invested principal) value of the auction rate securities associated with failed auctions will not be accessible to the Company until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured. In light of these liquidity constraints, the Company performed a valuation analysis to determine the estimated fair value of these investments. The fair value of these investments was based on a trinomial discount model. This model considers the probability of three potential occurrences for each auction event through the maturity date of the security. The three potential outcomes for each auction are (i) successful auction/early redemption, (ii) failed auction and (iii) issuer default. Inputs in determining the probabilities of the potential outcomes include, but are not limited to, the security’s collateral, credit rating, insurance, issuer’s financial standing, contractual restrictions on disposition and the liquidity in the market. The fair value of each security was then determined by summing the present value of the probability weighted future principal and interest payments determined by the model. The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA-rated auction rate securities market. The expected term was based on management’s estimate of future liquidity. The illiquidity discount was based on the levels of federal insurance or FFELP backing for each security as well as considering similar preferred stock securities ratings and asset backed ratio requirements for each security.

As a result, as of February 29, 2012, the Company recorded an estimated cumulative unrealized loss of $2.0 million (net of taxes) related to the temporary impairment of the auction rate securities, which was included in accumulated other comprehensive income within shareholders’ equity. The Company deemed the loss to be temporary because the Company does not plan to sell any of the auction rate securities prior to maturity at an amount below the original purchase value and, at this time, does not deem it probable that it will receive less than 100 percent of the principal and accrued interest from the issuer. Further, the credit ratings of auction rate securities held by the Company remain at AAA levels. The Company continues to liquidate investments in auction rate securities as opportunities arise. In fiscal 2012, $3.6 million of such investments were liquidated at par in connection with issuer calls and redemptions.

The Company does not believe it will be necessary to access these investments to support current working capital requirements. However, the Company may be required to record additional unrealized losses in other comprehensive income in future periods based on then current facts and circumstances. Specifically, if the credit rating of the security issuers deteriorates, or if active markets for such securities are not reestablished, the Company may be required to adjust the carrying value of these investments through impairment charges recorded in the consolidated statements of operations, and any such impairment adjustments may be material.

4. BUSINESS COMBINATIONS

BridgeCo

On May 19, 2011 SMSC completed the acquisition of BridgeCo, Inc. (“BridgeCo”), a leader in wireless networked audio technologies. BridgeCo's JukeBlox(TM) technology connects tablets, smartphones, PCs, Macs and other consumer electronics products by enabling consumers to access their local or cloud-based music library from any device and from any room in the home. Its JukeBlox software platform, with integrated WiFi® support, enables music streaming to virtually all home audio equipment including home theater systems, A/V receivers, radios, wireless speakers and portable music player docking stations. BridgeCo's technology has been adopted by some of the largest consumer electronics brands in the world including Pioneer, Philips, Denon, Marantz, JBL, B&W and Harmon/Kardon.

As of the date of acquisition, the majority of BridgeCo’s assets were located in the United States with certain operations in India and Japan. The functional currency of BridgeCo’s operations in the United States is the U.S. dollar (“USD”), in India, the Indian Rupee and in Japan, the Japanese Yen.

SMSC made an initial investment of $41.0 million in cash (net of cash acquired). The terms of the purchase agreement provided for potential earnout payments of up to $5.0 million in 2012 and up to $22.5 million in 2013 to former BridgeCo shareholders, dependent on BridgeCo reaching certain revenue goals in calendar years 2011 and 2012.

In addition, an employee incentive bonus plan was established as part of the merger agreement in which a portion of the earnout payment due to shareholders was apportioned to employees contingent upon continuous future employment as of the specified payout dates established by the plan. This portion of the earnout was not included as part of the contingent consideration liability but is being charged to earnings over the required service period as earned.

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The fair value of the contingent consideration at acquisition of $8.8 million was estimated by applying the income approach. That measure was based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions included a discount rate of 19% and a probability-adjusted level of forecasted quarterly revenues.

The following table summarizes the components of the purchase price at fair value (in millions):

Cash acquired	$	(0.4	)
Cash consideration paid		41.4
Liability for contingent consideration		8.8
Total consideration	$	49.8

The following table summarizes the allocation of the purchase price at fair value (in millions):

Receivables	$	0.6
Inventories		1.0
Other current assets		0.6
Property,plant and equipment		0.4
Customer relationships		1.9
Trade name		0.1
Technology		7.4
Goodwill (all non-deductible for tax purposes)		40.2
Deferred tax assets		0.4
Other non current assets		0.3
Non-interest bearing liabilities		(2.4	)
Deferred tax liabilities		(0.7	)
Net assets	$	49.8

The results of BridgeCo’s operations subsequent to May 19, 2011 have been included in the Company’s consolidated results of operations. In fiscal 2012, BridgeCo contributed $28.1 million in revenue.

The following unaudited pro forma financial information presents the combined operating results of SMSC and BridgeCo as if the acquisition had occurred as of March 1, 2010. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

The unaudited pro forma financial information is presented in the following table (in thousands):

	Fiscal year ended February 29, 2012		Fiscal year ended February 28, 2011

Sales and revenues	$	415,101	$	416,636
Net income	$	7,540	$	3,391
Basic net income per share	$	0.33	$	0.15
Diluted net income per share	$	0.32	$	0.15

Symwave

On November 12, 2010 SMSC completed the acquisition of Symwave, Inc. (“Symwave”), a global fabless semiconductor company supplying high-performance analog/mixed-signal connectivity solutions utilizing proprietary technology, IP and silicon design capabilities. Symwave had approximately 90 employees, of which over 60 were in Asia. The functional currency of Symwave’s operations in the United States is the U.S. dollar (“USD”) and in China is the Chinese Yuan Renminbi (“CNY”).

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SMSC made an initial $5.2 million equity investment in Symwave in fiscal 2010, resulting in an equity stake of approximately 14 percent, and in fiscal 2011 provided $3.1 million in bridge financing to Symwave. At acquisition, the initial equity investment was revalued to $2.0 million and an impairment loss of $3.2 million was recorded within income from operations. The terms of the purchase agreement provide for quarterly cash payments to former Symwave shareholders upon achievement of certain revenue and gross profit margin goals. As a result, no cash was paid at acquisition and SMSC recorded a $3.1 million liability for contingent consideration. The fair value of the initial equity investment of $2.0 million was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions include a discount rate of 15 percent and a probability-adjusted level of quarterly revenues and gross profit margins.

The following table summarizes the components of the purchase price at fair value (in millions):

Fair value of initial investment in Symwave	$	2.0
Assumption of liability for overdue accounts payable		4.1
Assumption of liability for notes payable		3.2
Liability for contingent consideration		3.1
	$	12.4

The following table summarizes the allocation of the purchase price at fair value (in millions):

Cash and cash equivalents	$	1.5
Inventories		3.4
Accounts receivable		3.3
Other current assets		0.3
Fixed assets		2.0
Customer relationships		0.3
Trade name		0.2
Technology		3.6
Goodwill (all non-deductible for tax purposes)		1.7
Deferred tax assets		1.5
Accounts payable and accrued liabilities		(5.4	)
	$	12.4

The results of Symwave’s operations subsequent to November 12, 2010 have been included in the Company’s consolidated results of operations.

The following unaudited pro forma financial information presents the combined operating results of SMSC and Symwave as if the acquisition had occurred as of the beginning of each period presented. There were no pro forma adjustments in fiscal 2012 since Symwave results were included in SMSC results for the entire period. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

The unaudited pro forma financial information for the fiscal years ended February 28, 2011 and 2010 is presented in the following table (in thousands):

	Fiscal year ended February 28, 2011		Fiscal year ended February 28, 2010

Sales and revenues	$	413,918	$	308,936
Net income (loss)	$	5,863	$	(19,445	)
Basic net income (loss) per share	$	0.26	$	(0.88	)
Diluted net income (loss) per share	$	0.25	$	(0.88	)

During the fourth quarter of fiscal 2011 the Company initiated a plan to reduce costs and investments, including reducing investment in the former Symwave business (see Note 11 — Restructuring).

STS

On June 14, 2010 SMSC acquired Wireless Audio IP B.V. ("STS"), a fabless designer of plug-and-play wireless solutions for consumer audio streaming applications, including home theater, headphones, LED TVs, PCs, gaming and automotive entertainment. Customers include many of the industry's leading consumer and PC brands. STS' robust, low latency digital audio baseband processor and integrated module solutions are highly complementary to SMSC's Kleer wireless audio products. The majority of STS’ net assets are located in the Netherlands and Singapore, and the functional currency of STS’operations in the Netherlands is the Euro and in Singapore is the Singapore dollar.

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The following table summarizes the components of the purchase price at fair value (in millions):

Cash	$	22.0
Liability for contingent consideration		1.2
	$	23.2

The following table summarizes the allocation of the purchase price at fair value (in millions) :

Cash and cash equivalents	$	0.1
Inventories		0.2
Other current assets		0.1
Fixed assets		0.3
Customer relationships		3.9
Trade name		0.3
Technology		4.2
Goodwill (all non-deductible for tax purposes)		19.4
Other long-term assets		0.1
Accounts payable and accrued liabilities		(2.6	)
Other long-term liabilities		(1.1	)
Deferred tax liabilities		(1.7	)
	$	23.2

The results of STS’ operations subsequent to June 14, 2010 have been included in the Company’s consolidated results of operations. The acquisition of STS was not significant to the Company’s consolidated results of operations for fiscal 2011.

Kleer

On February 16, 2010 SMSC acquired substantially all the assets and certain liabilities of Kleer Corporation and Kleer Semiconductor Corporation (collectively “Kleer”), a designer of high quality, interoperable wireless audio technology addressing headphones and earphones, home audio/theater systems and speakers, portable audio/media players and automotive sound systems. This transaction brings a robust, high-quality audio and low-power radio frequency capability that will allow consumer and automotive OEMs to integrate wireless audio technology into portable audio devices and sound systems without compromising high-grade audio quality or battery life. The majority of Kleer’s net assets are located in Luxembourg, and the functional currency of Kleer’s operations is the US Dollar. Kleer technology provides a natural extension to SMSC’s consumer and automotive connectivity portfolio. This technology extends our ability to service our OEM customers with a broad portfolio of solutions.

The following table summarizes the components of the purchase price at fair value (in millions) :

Cash	$	5.5
Liability for contingent consideration		0.8
	$	6.3

The following table summarizes the allocation of the purchase price at fair value (in millions) :

Cash and cash equivalents	$	0.3
Accounts receivable		0.2
Inventories		0.6
Customer relationships		0.5
Trade name		0.7
Technology		1.8
Goodwill (of which $2.4M is tax-deductible)		2.5
Accounts payable and accrued liabilities		(0.3	)
	$	6.3

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The results of Kleer’s operations subsequent to February 16, 2010 have been included in the Company’s consolidated results of operations. The acquisition of Kleer was not significant to the Company’s fiscal 2010 consolidated results of operations.

K2L

On November 5, 2009, the Company (through its wholly-owned subsidiary, SMSC Europe GmbH) completed the acquisition of 100 percent of the outstanding shares of K2L GmbH (“K2L”), a privately held company located in Pforzheim, Germany that specializes in software development and systems integration support services for automotive networking applications, including MOST®-based systems. The majority of K2L’s net assets, including goodwill, are located in Germany, and the functional currency of K2L’s operations in Germany is the Euro. This acquisition significantly expands SMSC’s automotive engineering capabilities by adding an assembled workforce of approximately 30 highly skilled engineers and other professionals, in close proximity to SMSC’s current automotive product design center in Karlsruhe, Germany.

The following table summarizes the components of the purchase price (in millions) :

Cash	$	5.9
SMSC common stock (53,236 shares)		1.0
Liability for contingent consideration		2.0
	$	8.9

The following table summarizes the allocation of the purchase price at fair value (in millions) :

Cash and cash equivalents	$	0.6
Accounts receivable		0.8
Inventories		0.1
Other current assets		0.2
Property and equipment		0.3
Customer relationships		1.9
Trade name		0.2
Technology		1.7
Goodwill (all non-deductible for tax purposes)		4.8
Accounts payable and accrued liabilities		(0.4	)
Deferred income		(0.1	)
Deferred tax liabilities		(1.1	)
Other long-term liabilities		(0.1	)
	$	8.9

The results of K2L’s operations subsequent to November 5, 2009 have been included in the Company’s consolidated results of operations. The acquisition of K2L was not significant to the Company’s fiscal 2010 consolidated results of operations.

5. NON-CONTROLLING EQUITY INVESTMENTS

Eqcologic

On November 23, 2010, SMSC invested $2.0 million in EqcoLogic, N.V. (“EqcoLogic”), a Belgian corporation based in Brussels, Belgium. EqcoLogic is a developmental-stage company in the field of high speed and bidirectional data transmission. SMSC holds approximately 18.0 percent of the total outstanding equity of EqcoLogic on a fully diluted basis.

Canesta

During fiscal 2010, SMSC invested $2.0 in Canesta, a privately held developer of three-dimensional motion sensing systems and devices. Canesta entered into an asset purchase agreement with Microsoft, pursuant to which Microsoft acquired substantially all of the assets of Canesta. On November 30, 2010, SMSC received $2.2 million in cash and an additional $0.1 million on January 27, 2011 from Canesta pursuant to its asset purchase agreement with Microsoft (approximately $0.8 million in additional distributions will be held in escrow for 12 months or until all of the obligations of Canesta have been satisfied). As a result, the Company recorded a gain of $0.3 million in fiscal 2011.

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Symwave

SMSC made an initial $5.2 million equity investment in Symwave in fiscal 2010, resulting in an equity stake of approximately14 percent. On November 12, 2010 the Company completed its acquisition of Symwave (see Note 4 — Business Combinations).

6. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by reporting unit for fiscal 2012 consists of the following (in thousands):

Twelve Months Ended February 29, 2012	Analog/Mixed Signal			Wireless			AIS			Total

Balance, beginning of year	$	33,393		$	24,531		$	71,649		$	129,573
Accumulated impairment losses		-			-			(52,300	)		(52,300	)
		33,393			24,531			19,349			77,273
Adjustments		192			-			-			192
Goodwill acquired		-			40,173			-			40,173
Foreign exchange rate impact		(132	)		(2,965	)		(108	)		(3,205	)
Balance, end of year		33,453			61,739			71,541			166,733
Accumulated impairment losses		-			-			(52,300	)		(52,300	)
	$	33,453		$	61,739		$	19,241		$	114,433

Changes in the carrying amount of goodwill by reporting unit for fiscal 2011 consists of the following (in thousands):

Twelve Months Ended February 28, 2011	Analog/Mixed Signal		Wireless			AIS			Total

Balance, beginning of year	$	31,839	$	3,278		$	71,597		$	106,714
Accumulated impairment losses		-		-			(52,300	)		(52,300	)
		31,839		3,278			19,297			54,414
Adjustments		-		(787	)		-			(787	)
Goodwill acquired		1,497		19,400			-			20,897
Foreign exchange rate impact		57		2,640			52			2,749
Balance, end of year		33,393		24,531			71,649			129,573
Accumulated impairment losses		-		-			(52,300	)		(52,300	)
	$	33,393	$	24,531		$	19,349		$	77,273

The Company’s identifiable intangible assets consisted of the following (in thousands):

For the Fiscal Years Ended February 29 and 28,	2012				2011
	Cost		Accumulated Amortization		Cost		Accumulated Amortization

Purchased technologies	$	55,219	$	39,138	$	48,151	$	32,353
Customer relationships and contracts		19,951		12,908		18,291		10,268
Other		2,118		997		2,096		642
Total – finite-lived intangible assets		77,288		53,043		68,538		43,263
Trademarks and trade names		6,342		-		6,470		-
	$	83,630	$	53,043	$	75,008	$	43,263

Existing technologies have been assigned estimated useful lives of between six and nine years, with a weighted-average useful life of approximately eight years. Customer relationships and contracts have been assigned useful lives of between one and fifteen years, with a weighted-average useful life of approximately seven years. Certain trade names related to acquired businesses are amortized over a period of one year.

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Total amortization expense recorded for finite-lived intangible assets was as follows (in thousands):

For the Fiscal Years Ended February 29 and 28,		2012				2011				2010
Amortization expense		$	10,268			$	8,465			$	6,311

Estimated future finite-lived intangible asset amortization expense is as follows (in thousands):

Period	Amount
Fiscal 2013	$	9,517
Fiscal 2014	$	4,357
Fiscal 2015	$	3,844
Fiscal 2016	$	3,120
Fiscal 2017 and thereafter	$	3,407
	$	24,245

7. OTHER BALANCE SHEET DATA

Other balance sheet data is as follows (in thousands):

As of February 29 and 28,	2012			2011
Inventories:
Raw materials	$	2,346		$	2,413
Work-in-process		9,969			14,329
Finished goods		24,307			30,490
	$	36,622		$	47,232
Property, plant and equipment:
Land	$	578		$	578
Buildings and improvements		37,145			36,164
Machinery and equipment		144,416			133,778
		182,139			170,520
Less: Accumulated depreciation and amortization		(117,716	)		(103,138	)
	$	64,423		$	67,382
Accrued expenses, income taxes and other liabilities:
Employee compensation, incentives and benefits	$	14,544		$	15,910
Stock appreciation rights		23,300			28,259
Supplier financing – current		6,113			4,934
Restructuring charges (see Note 12)		728			2,821
Accrued rent obligations		2,643			2,944
Income taxes payable		1,297			2,545
Accrued contingent consideration		4,251			1,445
Other		8,616			13,601
	$	61,492		$	72,459
Other liabilities:
Retirement benefits	$	8,110		$	8,799
Income taxes		8,778			5,225
Supplier financing – non-current		3,381			5,406
Other		732			2,439
	$	21,001		$	21,869

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8. SHAREHOLDERS’ EQUITY

Common Stock Repurchase Program

In October 1998, the Company’s Board of Directors approved a common stock repurchase program, allowing the Company to repurchase up to one million shares of its common stock on the open market or in private transactions. The Board of Directors authorized the repurchase of additional shares in one million share increments in July 2000, July 2002, November 2007 and April 2008, and an additional two million shares in May 2011, bringing the total authorized repurchases to seven million shares as of February 29, 2012. As of February 29, 2012, the Company has repurchased approximately 5.8 million shares of its common stock at a cumulative cost of $131.1 million under this program, including 1,338,349 shares repurchased at a cost of $30.0 million in fiscal 2012. There was no share repurchase activity in fiscal 2011 or 2010.

The Company withheld 4,821 and 38,972 shares at a cost of $0.1 million and $1.0 million in the three and twelve month periods ended February 29, 2012, respectively, as part of an ongoing program to fund employee tax withholdings required on restricted shares vesting each period.

9. OTHER (EXPENSE) INCOME, NET

The components of the Company’s other (expense) income, net for the fiscal years ended February 29, 2012, and February 28, 2011 and 2010, were as follows (in thousands) :

For the Fiscal Years Ended February 29 and 28,	2012			2011			2010
Realized and unrealized foreign currency transaction (losses)	$	(27	)	$	(493	)	$	(551	)
Other miscellaneous income, net		113			245			37
	$	86		$	(248	)	$	(514	)

10. INCOME TAXES

Income before income taxes consists of (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Income (loss) from domestic operations	$	50,848		$	29,252		$	(3,926	)
Loss from foreign operations		(22,622	)		(10,347	)		(9,757	)
	$	28,226		$	18,905		$	(13,683	)

The provision for (benefit from) income taxes included in the consolidated statements of operations consists of the following (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Currrent:
Federal provision	$	3,869		$	7,689		$	4,021
State and local provision		618			181			292
Foreign provision (benefit)		4,062			1,847			(152	)
Deferred:
Federal provision (benefit)		13,835			(1,576	)		(7,235	)
State and local benefit		(1,455	)		(70	)		(138	)
Foreign benefit		(3,365	)		207			(2,493	)
Provision (benefit)	$	17,564		$	8,278		$	(5,705	)

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The items accounting for the difference between the provision for (benefit from) income taxes computed at the U.S. federal statutory rate and the Company’s provision for (benefit from) income taxes are as follows (in thousands):

For the Years Ended February 29 and 28,	2012			2011			2010
Provision (benefit) at statutory rate	$	9,874		$	6,617		$	(4,789	)
State and local tax, net of federal tax benefit		(546	)		73			99
International tax rate differential		794			1,448			910
Foreign losses not benefitted		6,026			4,075			-
Tax exempt income		(61	)		(154	)		(222	)
Adjustments to prior years' taxes		(183	)		323			(10	)
Impact of rate change		60			-			-
Tax credits and incentives		(2,280	)		(2,348	)		(1,362	)
Equity-based compensation		(3	)		524			324
Non-deductible executive compensation		23			397			237
Change in liability for unrecognized tax benefits		4,363			(2,288	)		(994	)
Acquisition costs		(305	)		(1,133	)		-
Valuation allowance		(206	)		-			-
Other		8			744			102
	$	17,564		$	8,278		$	(5,705	)

For fiscal years 2011 and 2010 certain items were reclassified for presentation purposes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes. The components of the Company’s deferred income taxes are as follows (in thousands):

As of February 29 and 28,	2012			2011
Deferred tax assets:
Reserves and Accruals	$	13,969		$	26,188
Inventory Valuation		2,782			3,392
Restructuring Costs		552			367
Equity Impairment		2,385			2,259
Research and Development Credit		4,037			3,894
ITC Carryforward		683			802
Stock Compensation		7,735			6,070
NOL Carryforward		14,332			5,757
Pension / Retirement		3,714			3,521
Other		339			381
Total deferred tax assets	$	50,528		$	52,631
Valuation allowance		(16,728	)		(8,036	)
Net deferred tax assets	$	33,800		$	44,595

Deferred tax liabilities:
Property, Plant and Equipment	$	(5,443	)	$	(5,328	)
Goodwill and Other Intangible Assets		(4,750	)		(7,126	)
Other		(53	)		-
Total deferred tax liabilities	$	(10,246	)	$	(12,454	)

Net deferred tax asset	$	23,554		$	32,141

The Company has net New York State tax credit carryforwards in fiscal 2012 and 2011 of $0.7 million and 0.8 million, respectively. The Company also has various net state tax credits carryforwards for fiscal 2012 of $4.0 million with a valuation allowance of $3.2 million. These credit carryforwards expire at various dates from fiscal 2018 through fiscal 2029, and certain credits can be utilized without limitation.

As of February 29, 2012, the Company had approximately $12.2 million of foreign net operating losses with a valuation allowance of $10.7 million. A portion of these net operating losses will expire in 2013 through 2021, while certain foreign NOLs have an indefinite life. As of February 29, 2012, undistributed earnings of the Company’s foreign subsidiaries amounted to $2.0 million. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce a portion of the U.S. tax liability.

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The Company has recorded net deferred tax assets of $23.6 million and $32.1 million for years ending February 29, 2012 and February 28, 2011, respectively. Included in the net deferred tax assets, is a valuation allowance of $16.8 million and $8.0 million for years ending February 29, 2012 and February 28, 2011 to reduce its deferred tax assets to the amount that is more likely than not to be realized, respectively. In assessing the need for the valuation allowance, the Company considered, among other things, its projections of future taxable income and ongoing prudent and feasible tax planning strategies.

The Company is routinely audited by federal, state and foreign tax authorities with respect to its income taxes. The Company’s primary tax jurisdiction is the United States. Tax returns open for examination are for fiscal 2008 and subsequent years. The Company regularly reviews and evaluates the likelihood of audit assessments and believes there are no uncertain tax positions to be recorded.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):

Balance at March 1, 2009	$	4,784
Additions based on tax positions related to the current year		550
Additions for tax positions of prior years		13
Reductions for tax positions due to lapse of statutes of limitations		(783	)
Balance at February 28, 2010	$	4,564
Additions based on tax positions related to the current year		182
Additions for tax positions of prior years		968
Reductions for tax positions due to lapse of statutes of limitations		(1,727	)
Balance at February 28, 2011	$	3,987
Additions based on tax positions related to the current year		3,219
Additions for tax positions of prior years		1,506
Reductions for tax positions due to lapse of statutes of limitations		(949	)
Balance at February 29, 2012	$	7,763

The Company accrues interest and penalties associated with unrecognized tax benefits in income tax expense in its consolidated statements of operations. The net expense for interest and penalties reflected in the consolidated statements of operations was approximately $0.3 million, $0.1 million and $0.1 million for each of the fiscal years ended 2012, 2011 and 2010, respectively. The total accrued interest and penalties reflected as of February 29, 2012 is $1.0 million.

As of February 29, 2012, the unrecognized tax benefits, excluding interest and penalties that would affect the effective tax rate within the next twelve months, if recognized would have been $0.5 million.

11. RESTRUCTURING

During the fourth quarter of fiscal 2012 the Company initiated a plan to reduce certain operating expenses. As a result approximately 60 positions worldwide were eliminated as part of the plan to reduce operating expenses by approximately $6 to $7 million on an annual basis. These actions resulted in a severance charge of $1.5 million in fiscal year 2012. The Company expects these cost reduction activities and cash payments to be completed during the first quarter of fiscal 2013.

During the second quarter of fiscal 2012 the Company reorganized certain engineering groups resulting in severance charges of $0.4 million. The Company expects the remaining cash payments on these obligations to be completed during the first quarter of fiscal 2013.

During the fourth quarter of fiscal 2011 the Company initiated a plan to reduce costs and investments in certain businesses. As a result, approximately 80 positions worldwide, including approximately 50 positions at its subsidiary in Shenzhen China, were eliminated as part of the plan to substantially reduce investment in storage solutions acquired as part of the Symwave acquisition. The remaining positions eliminated consist of certain administrative positions, certain positions in its subsidiary in Canada as part of its plan to converge the wireless audio products roadmap from the Kleer and STS acquisitions and to rationalize worldwide resources working on wireless audio products, and certain engineering positions. These actions resulted in a severance charge of $3.5 million in fiscal year 2011. The Company expects these cost reduction activities and cash payments to be completed in the first quarter of fiscal 2013.

In the second quarter of fiscal 2011, the Company initiated a restructuring plan for severance and termination benefits for 9 employees. These actions resulted in a severance charge of $0.3 million in fiscal year 2011. The Company expects these cost reduction activities and cash payments to be completed in the first quarter of fiscal 2013.

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In the fourth quarter of fiscal 2010, the Company initiated a restructuring plan for severance and termination benefits for 5 employees. The Company made the final payments related to these obligations in fiscal year 2012.

In the second quarter of fiscal 2010, the Company announced a plan to reduce its workforce by sixty-four employees in connection with the relocation of certain of its test floor activities from Hauppauge, New York to third party offshore facilities (Sigurd Microelectronics Corporation) in Taiwan. The Company completed this plan in fiscal year 2012.

In the fourth quarter of fiscal 2009, the Company announced a restructuring plan that included a supplemental voluntary retirement program and involuntary separations that would result in approximately a ten percent reduction in employee headcount and expenses worldwide. The Company completed this plan in fiscal year 2012.

The following table summarizes the activity related to the accrual for restructuring charges for the fiscal year ended February 29, 2012 (in thousands):

	Balance as of March 1, 2011		Severance & Benefits Charges			Assets Impairment		Payments			Balance as of February 29, 2012
Q4 Fiscal 2009 Restructuring Plan	$	2	$	-		$	-	$	(2	)	$	-
Q2 Fiscal 2010 Restructuring Plan		15		(15	)		-		-			-
Q4 Fiscal 2010 Restructuring Plan		27		-			-		(27	)		-
Q2 Fiscal 2011 Restructuring Plan		348		(83	)		-		(228	)		37
Q4 Fiscal 2011 Restructuring Plan		2,429		82			73		(2,513	)		71
Q2 Fiscal 2012 Restructuring Plan		-		418			-		(368	)		50
Q4 Fiscal 2012 Restructuring Plan		-		1,498					(927	)		571
Balance as of February 29, 2012	$	2,821	$	1,900		$	73	$	(4,065	)	$	729

The following table summarizes the activity related to the accrual for restructuring charges for the fiscal year ended February 28, 2011

(in thousands):

	Balance as of March 1, 2010		Severance & Benefits Charges		Assets Impairment		Payments			Reclasses			Non-Cash Items			Balance as of February 28, 2011
Q4 Fiscal 2009 Restructuring Plan	$	210	$	-	$	-	$	(212	)	$	-		$	4		$	2
Q2 Fiscal 2010 Restructuring Plan		101		-		-		(86	)		-			-			15
Q4 Fiscal 2010 Restructuring Plan		780		822		-		(1,440	)		(24	)		(111	)		27
Q2 Fiscal 2011 Restructuring Plan		-		348		-		-			-			-			348
Q4 Fiscal 2011 Restructuring Plan		-		2,489		1,044		-			-			(1,104	)		2,429
Balance as of February 28, 2011	$	1,091	$	3,659	$	1,044	$	(1,738	)	$	(24	)	$	(1,211	)	$	2,821

12. BENEFIT AND INCENTIVE PLANS (INCLUDING SHARE-BASED PAYMENTS)

The Company has several stock-based compensation plans in effect under which incentive stock options and non-qualified stock options (collectively “stock options”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights have been granted to employees and directors. After amendment on July 28, 2011 the maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 share equivalents. The Company has ceased issuing stock options and restricted stock awards under previously established stock option and restricted stock plans, and has ceased issuing SARs, and instead is using the LTIP to issue stock options and RSUs. The Compensation Committee and management continue to evaluate means to effectively promote share ownership by employees and directors while offering industry-competitive compensation packages, including appropriate use of stock-based compensation awards.

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Long Term Incentive Plan

Under the LTIP, the Compensation Committee of the Board of Directors is authorized to grant awards of stock options, restricted stock or restricted stock units, or other stock-based awards. The Committee is authorized under the LTIP to delegate its authority in certain circumstances. The purpose of this plan is to promote the interests of the Company and its shareholders by providing officers, directors and key employees with additional incentives and the opportunity, through stock ownership, to better align their interests with the Company’s and enhance their personal interest in its continued success. The maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 shares equivalents. As of February 29, 2012, awards amounting to 843,395 share equivalents may be granted under the LTIP.

Employee and Director Stock Option Plans

Under the Company’s various plans, the Compensation Committee of the Board of Directors had been authorized to grant options to purchase shares of common stock. Stock options under inducement plans were offered only to new employees, and all options were granted at prices not less than the fair market value on the date of grant. The grant date fair values of stock options are recorded as compensation expense ratably over the vesting period of each award, as adjusted for forfeitures of unvested awards. Stock options generally vest over four or five-year periods, and expire no later than ten years from the date of grant. Following shareholder approval of the LTIP, the Company ceased issuing awards under previously established stock option plans.

Stock option plan activity is summarized below (in thousands, except per share data):

	Fiscal 2012 Shares			Weighted Average Exercise Price per Share		Fiscal 2011 Shares			Weighted Average Exercise Price per Share
Options outstanding, beginning of year		3,075		$	22.75		3,480		$	22.31
Granted		359		$	23.46		423		$	25.26
Exercised		(307	)	$	18.07		(523	)	$	18.81
Canceled, forfeited or expired		(195	)	$	29.08		(305	)	$	27.95
Options outstanding, end of year		2,932		$	22.90		3,075		$	22.75
Options exercisable, end of year		2,021		$	22.85		1,976		$	22.46

The following table summarizes information relating to outstanding and exercisable options as of February 29, 2012 (shares in thousands):

Range of Exercise Prices	Weighted Average Remaining Lives		Options Outstanding		Weighted Average Exercise Prices		Options Exercisable		Weighted Average Exercise Prices
$10.56 - $17.62		4.4		663	$	16.41		544	$	16.52
$18.29 - $22.35		5.4		907	$	20.32		660	$	20.38
$22.40 - $27.76		7.6		802	$	25.26		320	$	25.49
$27.90 - $36.13		4.6		560	$	31.38		497	$	31.36
		5.6		2,932	$	22.90		2,021	$	22.85

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The following table summarizes information relating to currently outstanding and exercisable options:

For the fiscal years ended February 29 and 28,	2012		2011		2010
Aggregate intrinsic value of options exercisable (in thousands)	$	8,606	$	10,684	$	2,718
Total intrinsic value of options exercised (in thousands)	$	2,461	$	4,016	$	1,098
Total intrinsic value of options vested (in thousands)	$	5,273	$	6,084	$	6,889
Total remaining unrecognized compensation cost (in thousands)	$	6,338	$	8,934	$	11,623
Compensation expense recognized (in thousands)	$	5,218	$	5,589	$	6,342
Weighted average grant-date fair value per share	$	9.33	$	10.98	$	8.86
Weighted average remaining contractual life of options exercisable (in years)		4.5		4.5		4.6
Weighted average period over which the cost is expected to be recognized (in years)		1.43		1.29		1.75

The fair value of stock options granted in connection with the Company’s stock incentive plans have been estimated utilizing the following assumptions:

	Fiscal Years Ended
	February 29, 2012			February 28, 2011			February 28, 2010
Dividend yield		-			-			-
Expected volatility		43-44	%		44-47	%		47-50	%
Risk-free interest rates		0.84 - 2.10	%		1.35%-2.58	%		2.13%-2.48	%
Expected lives (in years)		5.02			5.02			5.01

Restricted Stock Awards/Restricted Stock Units

The Company provides common stock awards to certain officers and key employees. The Company previously granted restricted stock awards, at its discretion, and as part of the Company’s management incentive plan, from the shares available under its 2001 and 2003 Stock Option and Restricted Stock Plans and its 2005 Inducement Stock Option and Restricted Stock Plan. The shares awarded were typically earned in 25 percent, 25 percent and 50 percent increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards. Restricted stock shares are no longer being granted from previously established restricted stock award plans. Instead, restricted stock units are currently being granted from the LTIP. Restricted stock units are typically earned in 33 percent increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee remains employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards.

RSAs and RSUs activity for the twelve months ended February 29, 2012 and February 28, 2011 is set forth below (shares in thousands):

	Fiscal 2012 Shares			Weighted Average Grant-Date Fair Value		Fiscal 2011 Shares			Weighted Average Grant-Date Fair Value
RSAs and RSUs outstanding, beginning of year		424		$	23.79		90		$	25.42
Granted		507		$	23.53		462		$	23.11
Canceled or expired		(51	)	$	26.17		(81	)	$	18.55
Vested		(130	)	$	25.34		(47	)	$	29.26
Restricted stock shares outstanding, end of year		750		$	23.18		424		$	23.79

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The following table summarizes information relating to RSAs and RSUs activity:

For the fiscal year ended February 29 and 28,	2012		2011		2010
Total intrinsic value of shares vested (in thousands)	$	3,256	$	1,167	$	1,202
Total fair value of shares vested (in thousands)	$	3,304	$	1,361	$	1,795
Total intrinsic value of all outstanding shares (in thousands)	$	19,190	$	11,264	$	1,762
Total unrecognized compensation cost (in thousands)	$	13,475	$	7,921	$	1,238
Weighted average period over which the unrecognized compensation cost is expected to be recognized (in years)		1.53		2.09		1.19
Weighted average grant-date fair value per share	$	23.53	$	23.11	$	16.87

Stock Appreciation Rights Plan

In September 2004 and September 2006, the Company’s Board of Directors approved Stock Appreciation Rights (“SAR”) Plans (the “Plans”), the purpose of which are to attract, retain, reward and motivate employees and consultants to promote the Company’s best interests and to share in its future success. The Plans authorize the Board’s Compensation Committee to grant up to six million SAR awards to eligible officers, employees and consultants (after amendment to the 2006 SARs Plan, effective April 30, 2008). Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a share of SMSC common stock over the award’s exercise price. On July 11, 2006, the Company’s Board of Directors approved the 2006 Director Stock Appreciation Rights Plan. The Company can grant up to 200,000 Director SARs under this plan. On April 9, 2008, the Board of Directors authorized an increase in the number of SARs issuable pursuant to this plan from 200,000 to 400,000. The exercise price of a SAR is equal to the closing market price of SMSC stock on the date of grant. SAR awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant. The Company has currently ceased issuing SARs to employees and Directors and is using the LTIP instead.

The Company recognizes compensation expense for SARs using a graded vesting methodology, adjusting for changes in fair value from period to period. Compensation expense also includes adjustments for any exercises of SARs to record any differences between total cash paid at settlement and previously recognized compensation expenses. Prior to the adoption of guidance now codified as ASC Topic 718, “ Compensation — Stock Compensation ” (“ASC 718”), the Company recognized compensation expense for SARs based on the excess of the award’s market value over its exercise price over the term of the award.

The total unrecognized compensation cost related to SMSC’s stock appreciation rights plan is $5.3 million as of February 29, 2012. The weighted average period over which the cost is expected to be recognized is 2.74 years.

Activity under Plans is summarized below (shares in thousands):

	Fiscal 2012 Shares			Weighted Average Exercise Price per Share		Fiscal 2011 Shares			Weighted Average Exercise Price per Share		Fiscal 2010 Shares			Weighted Average Exercise Price per Share
SARs outstanding, beginning of year		4,249		$	24.96		4,766		$	24.69		3,852		$	27.22
Granted		-		$	-		-		$	-		1,399		$	17.61
Exercised		(260	)	$	17.85		(229	)	$	17.29		(121	)	$	17.06
Canceled or expired		(201	)	$	26.77		(288	)	$	26.69		(364	)	$	26.72
SARs outstanding, end of year		3,788		$	25.35		4,249		$	24.96		4,766		$	24.69
SARs exercisable, end of year		2,939		$	26.52		2,600		$	26.47		2,005		$	26.58

Activity under the Stock Appreciation Rights Plan is summarized below:

For the fiscal years ended February 29 and28,	2012		2011		2010
Aggregate intrinsic value (in thousands)	$	12,912	$	17,282	$	5,125
Total fair value of SARs vested (in thousands)	$	6,045	$	9,802	$	4,713
Total cash paid in connection with SARs (in thousands)	$	2,311	$	2,286	$	485
Compensation expense recognized (in thousands)	$	2,649	$	15,937	$	8,490
Weighted average grant-date fair value per share	$	-	$	-	$	9.63
Weighted average remaining contractual life of SARs outstanding (years)		5.5		6.5		7.5
Weighted average remaining contractual life of SARs exercisable (years)		5.1		5.9		7.8

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The fair value of SARs granted in connection with the Plans have been estimated utilizing the following assumptions:

	Fiscal Years Ended
	February 29, 2012			February 28, 2011			February 28, 2010
Dividend yield		-			-			-
Expected volatility		21-50	%		37%-53	%		41%-60	%
Risk-free interest rates		0.01%-1.69	%		0.04%-2.76	%		0.15%-2.83	%
Expected lives (in years)		0.00-4.70			0.02-5.62			0.50-6.20

Employee Stock Purchase Plan

The Company’s 2010 Employee Stock Purchase Plan (the “Purchase Plan”), effective November 1, 2010, provides for the issuance of up to 1,100,000 shares of common stock to eligible employees. The Purchase Plan provides for eligible employees to purchase whole shares of common stock at a price of 85% of the lesser of: (a) the fair market value of a share of common stock on the first date of the purchase period or (b) the fair market value of a share of common stock on the last date of the purchase period. Stock-based compensation expense for the Purchase Plan is recognized over the vesting period of six months on a straight-line basis. As of February 29, 2012 the Company had 994,417 shares available for future grants and issuances under the Purchase Plan. The Company recognized expense of $0.2 million in fiscal 2012.

13. RETIREMENT BENEFIT PLANS

Supplemental Executive Retirement Plan

The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) to provide senior management with retirement, disability and death benefits. The SERP’s retirement benefits were based upon the participant’s average compensation during the three-year period prior to retirement. An amendment to the SERP was executed on November 3, 2009, freezing the benefit level for existing participants as of February 28, 2010 and closing the SERP to new participants.

The following tables summarize changes in the SERP’s benefit obligation, the SERP’s plan assets and the SERP’s components of net periodic benefit costs, including key assumptions. The measurement dates for the SERP’s plan assets and obligations were February 29, 2012 and February 28, 2011 (in thousands):

As of February 29 and 28,	2012			2011
Change in projected benefit obligation:
Beginning of year	$	7,681		$	7,411
Interest cost		347			412
Benefit payments		(740	)		(740	)
Actuarial loss		712			598
End of year	$	8,000		$	7,681

Change in plan assets:
Employer contribution	$	740		$	740
Benefits paid		(740	)		(740	)
Fair value of plan assets at end of year	$	-		$	-
Amounts recognized in the statement of financial position:
Current liabilities	$	(655	)	$	(740	)
Non-current liabilities		(7,345	)		(6,941	)
Pension liability at end of year	$	(8,000	)	$	(7,681	)
Amounts recognized in accumulated other comprehensive loss:
Net loss	$	1,320		$	608
Total amount recognized in accumulated other comprehensive income	$	1,320		$	608
Assumptions used in determining actuarial present value of benefit obligations:
Discount rate		3.55	%		4.75	%

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For the Years Ended February 29 and 28,	2012			2011			2010
Components of net periodic benefit costs:
Service cost - benefits earned during the year	$	-		$	-		$	311
Interest cost on projected benefit obligation		347			412			443
Net periodic pension expense	$	347		$	412		$	754
Assumptions used to calculate periodic pension cost:
Discount rate		4.75	%		4.75	%		6.75	%
Weighted average rate of compensation increase		-			-			-

The discount rate used in the Plan’s measurement is based upon a weighted average of high-quality long-term investment yields during the six-month period preceding the date of measurement.

Although the Plan is unfunded, the Company is the beneficiary of life insurance policies that have been purchased as a method of partially financing benefits. The cash surrender value of these policies was approximately $1.7 million at February 29, 2012 and February 28, 2011.

Annual benefit payments and contributions under this plan are expected to be approximately $0.7 million in fiscal 2013 and approximately $5.0 million cumulatively in fiscal 2014 through fiscal 2022.

The estimated portion of net gains and losses, prior service costs and credits and transition assets and obligations of the plan to be amortized during the next fiscal year is a negligible amount.

Retirement Plan — SMSC Japan

One of the Company’s subsidiaries, SMSC Japan, also maintains an unfunded retirement plan, which provides its employees and directors with separation benefits, consistent with customary practices in Japan. Benefits under this defined benefit plan are based upon length of service and compensation factors.

The following tables summarize changes in the plan’s benefit obligation, the plan assets and components of net periodic benefit costs, including key assumptions. The measurement dates for the plan assets and obligations were February 29, 2012 and February 28, 2011 (in thousands):

As of February 29 and 28,	2012			2011
Change in projected benefit obligation:
Beginning of year	$	1,746		$	1,550
Service cost - benefits earned during the year		251			244
Interest cost		22			18
Amendments/Settlements/Curtailments		(39	)		-
Actuarial loss		14			-
Benefit payments		(1,529	)		(193	)
Other		-			127
End of year	$	465		$	1,746

Change in plan assets:
Employer contribution	$	1,529		$	193
Benefits paid		(1,529	)		(193	)
Fair value of plan assets at end of year	$	-		$	-
Amounts recognized in the statement of financial position:
Current liabilities	$	-		$	(204	)
Non-current liabilities		(465	)		(1,542	)
Net amounts recognized	$	(465	)	$	(1,746	)
Amounts recognized in accumulated other comprehensive loss:
Net loss	$	7		$	51
Total amount recognized in accumulated other comprehensive income	$	7		$	51
Assumptions used in determining actuarial present value of benefit obligations:
Discount rate		1.20	%		1.25	%
Weighted average rate of compensation increase		4.40	%		3.00	%

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For the Years Ended February 29 and 28,	2012			2011			2010
Components of net periodic benefit costs:
Service cost - benefits earned during the year	$	251		$	244		$	138
Interest cost on projected benefit obligation		22			18			14
Settlement loss recognized		19			-			-
Net periodic pension expense	$	292		$	262		$	152
Assumptions used to calculate periodic pension cost:
Discount rate		1.25	%		1.25	%		1.50	%
Weighted average rate of compensation increase		3.00	%		3.00	%		3.00	%

The discount rate used in the Plan’s measurement is based upon an average of high-quality long-term investment yields in Japan. The weighted average rate of compensation increase reflects management’s current expectations of future compensation trends.

There is no benefit payments expected to be made by the plan in fiscal 2013. The plan as it pertains to non-director employees has been transitioned to a defined contribution plan in fiscal 2012.

14. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain facilities and equipment under operating leases. The facility leases generally provide for the lessee to pay taxes, maintenance, and certain other operating costs of the leased property. At February 29, 2012 future minimum lease payments for non-cancelable lease obligations are as follows (in thousands):

Period	Amount
Fiscal 2013	$	4,569
Fiscal 2014		3,275
Fiscal 2015		2,609
Fiscal 2016		2,193
Fiscal 2017 and thereafter		7,316
	$	19,962

For all operating leases, the total rent expense was as follows (in thousands):

For the Fiscal Years Ended February 29 and 28,		2012				2011				2010
Rent expense		$	5,781			$	4,947			$	3,700

Open Purchase Orders

As of February 29, 2012 the Company had approximately $14.2 million in obligations under open purchase orders. Open purchase orders represent agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including quantities to be purchased, pricing provisions and the approximate timing of the transactions. These obligations primarily relate to future purchases of wafers from foundries, assembly and testing services and manufacturing and design equipment.

Supplier Financing

During fiscal 2012 and 2011 the Company acquired $5.9 million and $5.8 million, respectively, of software and other tools used in product design, for which the suppliers provided payment terms.

As of February 29, 2012, future supplier financing obligations are as follows (in thousands):

Period	Amount
Fiscal 2013	$	8,008
Fiscal 2014		3,181
Fiscal 2015		842
Total supplier financing obligations	$	12,031

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Contingent Consideration — BridgeCo Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price of BridgeCo at acquisition on May 19, 2011 at the estimated fair value of $8.8 million. The contingent consideration arrangement provide for potential earnout payments of up to $5.0 million in 2012 and up to $22.5 million in 2013 to the former BridgeCo shareholders, depending on BridgeCo achievement of certain revenue goals in calendar years 2011 and 2012. The earnout payment for calendar year 2011 has been achieved at 100% and has been paid in the fourth quarter of fiscal 2012. The calendar year 2012 liability has been revalued to $2.8 million as of February 29, 2012 based on the likelihood of achieving the performance goals.

Contingent Consideration — Symwave Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price of Symwave at acquisition on November 12, 2010 at the estimated fair value of $3.1 million. The contingent consideration arrangement requires the Company to pay the former owners of Symwave an earnout amount equal to one times revenue (less certain agreed upon adjustments), depending on the achievement of certain revenue and gross profit margin performance goals, for each of the four quarterly periods from January 1, 2011 until December 31, 2011. No earnout payments shall be payable for any period after December 31, 2011. This liability was revalued to zero as of February 29, 2012 based on the performance goals not being met.

Contingent Consideration — STS Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of STS. The contingent consideration arrangement requires the Company to pay the former owners of STS an earnout amount of $3.0 million for the period from January 1, 2011 until December 31, 2011 provided that revenue meets performance goals set forth in the purchase agreement. No earnout payments shall be payable for any period after December 31, 2011. This liability was revalued to zero as of February 29, 2012 based on the performance goals not being met.

Contingent Consideration — Kleer Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Kleer. The maximum amount of contingent consideration that can be earned by the sellers was $2.0 million as set forth in the purchase agreement. This liability was revalued to zero as of February 28, 2011 based on the performance goals not being met.

Contingent Consideration — K2L Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of K2L. The maximum amount of contingent consideration that can be earned by the sellers is 2.1 million Euro. Fifty percent of the contingent consideration was earned in calendar year 2010 and fifty percent is available to be earned in 2011 based on the level of achievement of revenue as set forth in the purchase agreement. On March 31, 2011, 1.05 million Euro in stock and cash was paid to the former owners of K2L for calendar year 2010 performance targets. The calendar year 2011 liability has been revalued to 1.05 million Euro as of February 29, 2012 based on the likelihood of achieving the performance goals. On March 31, 2012, 1.05 million Euros in cash and stock was paid to the former owners of K2L for calendar year 2011 performance targets. There are no further contingent consideration amounts due with respect to K2L.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, which is a Level 3 input. Key assumptions include a discount rate of 16 percent and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Litigation

From time to time as a normal incidence of doing business, various claims and litigation have been asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages and/or invalidate its proprietary rights. Any lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, and an adverse outcome of any significant matter could have a material adverse effect on the Company’s consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

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15. SUPPLEMENTAL CASH FLOW DISCLOSURES

The information below summarizes the Company’s supplemental cash flow disclosures (in thousands):

For the Fiscal Years Ended February 29 and 28,	2012		2011		2010
Design tools acquired under supplier financing	$	5,939	$	5,804	$	12,747
Cash payments made - federal, state, and foreign income taxes	$	6,732	$	14,253	$	3,291

16. INDUSTRY SEGMENT, GEOGRAPHIC, CUSTOMER AND SUPPLIER INFORMATION

Industry Segment

Given the Company’s focus on developing products that can address multiple end markets, market demand for products that contain more than one element of SMSC’s technology solutions and the impact that these trends have had on the management of the Company’s business and internal reporting, the Company has concluded that it operates and reports as a single business segment — the design, development, and marketing of semiconductor integrated circuits.

Sales and Revenues by Geographic Region

The Company’s sales by country are based upon the geographic location of the customers who purchase the Company’s products. For product sales to electronic component distributors, their countries may be different from those of the end customers. The information below summarizes sales and revenues to unaffiliated customers by country (in thousands):

For the Fiscal Years Ended February 29 and 28,	2012		2011		2010
China	$	85,787	$	77,247	$	67,287
Taiwan		74,988		88,343		75,548
Japan		68,319		73,588		47,055
United States		30,474		33,853		21,665
Germany		27,616		28,197		20,852
Hong Kong		27,289		22,569		16,423
Other		97,631		85,682		58,948
	$	412,104	$	409,479	$	307,778

Certain prior year amounts reported above have been reclassified to conform to the current year presentation.

Significant Customers

From period to period, several key customers account for a significant portion of the Company’s sales and revenues. Sales and revenues from significant customers, stated as percentages of total sales and revenues, are summarized as follows:

For Fiscal Years Ended February 29 and 28,		2012				2011				2010
Avnet Asia			12	%			16	%			12	%

The Company’s contracting sales counterparty may vary as a result of the manner in which it goes to market, the structure of the semiconductor market, industry consolidation and customer preferences. In many cases the Company’s products will be designed into an end product by an OEM customer who will then contract to have the product manufactured by an ODM. In such cases, the Company will sell its products directly to the selected ODM, who becomes the Company’s contracting counterparty for the sale. In other cases, the OEM or ODM may design the product and be the contracting counterparty. In some cases the Company or the ODM may wish to have a distributor as the direct sales counterparty. As a result of changing relationships and shifting market practices and preferences, the mix of customers can change from period to period and over time.

Long-Lived Assets by Geographic Region

The Company’s net property, plant and equipment by geographic area consists of the following (in thousands):

As of February 29 and 28,	2012		2011
United States and Canada	$	49,206	$	58,601
Luxembourg		7,398		-
Taiwan		2,922		3,393
Other Asia Pacific		3,379		3,235
Germany and Other Europe		1,518		2,153
	$	64,423	$	67,382

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Significant Suppliers

The Company does not operate a wafer fabrication facility. Three independent semiconductor wafer foundries in Asia currently supply substantially all of the Company’s devices in current production. In addition, substantially all of the Company’s products are assembled and tested by several independent subcontractors in Asia.

17. RELATED PARTY TRANSACTIONS

Delta Design, Inc (“Delta”) and Rasco GmbH (“Rasco”) manufacture semiconductor test equipment. Delta and Rasco are wholly owned by Cohu, Inc. (“Cohu”), whose President and Chief Executive Officer is James Donahue, a Director of the Company. (Rasco was purchased by Cohu in fiscal year 2009.) The Company has purchased equipment, supplies and services from Delta and Rasco in the ordinary course of business both before and after Mr. Donahue became a Director of the Company in 2003.

The Company has purchased equipment, supplies and services from Delta and Rasco as follows (in thousands):

For the Fiscal Years Ended February 29 and 28,		2012				2011				2010
Purchases from Delta and Rasco		$	322			$	382			$	1,191

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

(in thousands, except per share data; the sum of the net income per share amounts may not total due to rounding)

Fiscal 2012

	Quarterly Ended
	May 31		Aug. 31		Nov. 30			Feb. 29
	(Unaudited)
Sales and revenues	$	103,495	$	112,581	$	106,161		$	89,867
Gross profit	$	55,785	$	60,344	$	53,163		$	46,367
Income (loss) from operations	$	7,669	$	21,520	$	1,163		$	(2,359	)
Net income (loss)	$	6,177	$	11,891	$	(3,277	)	$	(4,131	)
Net income (loss) per share:
Basic	$	0.27	$	0.52	$	(0.15	)	$	(0.19	)
Diluted	$	0.26	$	0.51	$	(0.15	)	$	(0.19	)
Weighted average shares outstanding:
Basic		23,059		23,065		22,486			22,199
Diluted		23,557		23,493		22,486			22,199

The Company’s stock-based compensation charges included in income from operations and net income for fiscal year 2012, by quarter, are as follows (in thousands):

	Quarterly Ended
	May 31		Aug. 31			Nov. 30		Feb. 29
Stock-based compensation charges	$	3,416	$	(9,251	)	$	11,054	$	2,985

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Fiscal 2011

	Quarterly Ended
	May 31		Aug. 31		Nov. 30			Feb. 28
	(Unaudited)
Sales and revenues	$	97,159	$	104,084	$	107,025		$	101,211
Gross profit	$	51,795	$	58,658	$	55,755		$	48,686
Income (loss) from operations	$	1,802	$	22,346	$	(8,186	)	$	2,685
Net income (loss)	$	627	$	12,902	$	(4,574	)	$	1,672
Net income (loss) per share:
Basic	$	0.03	$	0.57	$	(0.20	)	$	0.07
Diluted	$	0.03	$	0.57	$	(0.20	)	$	0.07
Weighted average shares outstanding:
Basic		22,481		22,606		22,679			22,897
Diluted		22,787		22,756		22,679			23,158

Income from operations and net income for the three months ended February 28, 2011 included acquisition termination fee gain of $7.7 million, gain on revaluation of contingent acquisition liability of $3.6 million, intangible impairment charges associated with the Company’s acquisition of Symwave of $3.5 million and restructuring charges of $3.7 million.

Income from operations and net income for the three months ended November 30, 2011 included impairment charges associated with the Company’s initial investment in Symwave of $3.2 million upon acquisition.

19. SUBSEQUENT EVENT

On August 16, 2011, SMSC entered into an Assignment and Assumption of Lease Agreement (the “Agreement”) with Rep 80 Arkay Drive, LLC (“Rep 80”), pursuant to which SMSC will assign its interest in its corporate headquarters at 80 Arkay Drive, Hauppauge New York 11788 (“the Premises”) to Rep 80 pursuant to a sale/leaseback transaction (the “Transaction”). The Transaction closed on March 14, 2012. The Transaction does not qualify for sale treatment and will be accounted for utilizing the deposit method.

At the closing of the Transaction, SMSC assigned its interest in the Premises to Rep 80 for $18,000,000. In connection with the Transaction, SMSC provided purchase money financing to Rep 80 (the “Loan”). The Loan is evidenced by a note from Rep 80 for the benefit of SMSC in the principal amount of $16,200,000 payable in five years at 5% interest on a monthly basis. As security for the note, Rep 80 delivered to SMSC a mortgage in the principal amount of $16,200,000 encumbering the Premises. Rep 80 also delivered an assignment of leases and rents with respect to all leases and rents at the Premises. As further security for the note, three principals of Rep 80 each executed a limited guaranty in favor of SMSC.

At Closing SMSC entered into three leases with Rep 80:

A six month triple net lease for approximately 78,000 square feet of the Premises,

A fifteen year triple net lease for approximately 112,000 square feet of the Premises, and

A fifteen year gross lease for approximately 10,000 square feet of the Premises.

The Agreement and Leases contains customary representations, warranties and covenants of Rep 80 and SMSC.

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Schedule II — Valuation and Qualifying Accounts

For the Three Fiscal Years Ended February 29, 2012

	Balance at Beginning of Period		Charged to Costs and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period
	(in thousands)
Fiscal Year Ended February 29, 2012
Allowance for Doubtful Accounts	$	325	$	115		$	-		$	(85	)	$	355
Reserve for Product Returns (a)	$	186	$	1,341		$	-		$	(1,186	)	$	341
Valuation Allowance on Net Deferred Taxes	$	8,036	$	8,628		$	64		$	-		$	16,728
Fiscal Year Ended February 28, 2011
Allowance for Doubtful Accounts	$	464	$	-		$	-		$	(139	)	$	325
Reserve for Product Returns (a)	$	150	$	1,010		$	-		$	(974	)	$	186
Valuation Allowance on Net Deferred Taxes	$	4,142	$	4,427		$	(533	)	$	-		$	8,036
Fiscal Year Ended February 28, 2010
Allowance for Doubtful Accounts	$	438	$	26		$	-		$	-		$	464
Reserve for Product Returns (a)	$	250	$	198		$	-		$	(298	)	$	150
Valuation Allowance on Net Deferred Taxes	$	5,835	$	(485	)	$	(1,208	)	$	-		$	4,142

(a) Represents sales value of expected returns of product from customers based on historical experience and recent trends.

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INDEX TO EXHIBITS

Exhibit No		Description
3.1		Certificate of Incorporation of Standard Microsystems Corporation, as amended and restated, incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-Q for the quarter ended August 31, 2006.

3.2		Amended and Restated By-Laws of Standard Microsystems Corporation, incorporated by reference to Exhibit 3.2 to the registrant’s Form 10-Q filed on September 25, 2007.

4.1		Rights Agreement with ChaseMellon Shareholder Services L.L.C., as Rights Agent, dated January 7, 1998, incorporated by reference to Exhibit 1 to the registrant’s Registration Statement on Form 8-A filed January 15, 1998.

4.2		Amendment No. 1 to Rights Agreement with ChaseMellon Shareholder Services L.L.C., as Rights Agent, dated January 23, 2001, incorporated by reference to Exhibit 4.2 to the registrant’s Form 10-K for the fiscal year ended February 28, 2001.

4.3		Amendment No. 2 to Rights Agreement with ChaseMellon Shareholder Services L.L.C., as Rights Agent, dated April 9, 2002, incorporated by reference to Exhibit 3 to the registrant’s Registration Statement on Form 8-A/A filed April 25, 2002.

10.1*		Employment Agreement with Steven J. Bilodeau, dated March 19, 2007, incorporated by reference to Exhibit 10.4 to the registrant’s Form 8-K filed on March 23, 2007.

10.2*		Transition Agreement dated June 3, 2008 with Steven J. Bilodeau incorporated by reference to Exhibit 99.1 to the registrant’s Form 8-K filed on June 6, 2008.

10.3*		Employment Agreement dated December 15, 2011 with Christine King incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on December 8, 2011.

10.4*		Letter Agreement with Kris Sennesael dated December 8, 2008 incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on December 10, 2008.

10.5*		Amendment to Letter Agreement between Kris Sennesael and Standard Microsystems Corporation dated as of November 3, 2009 incorporated by reference to Exhibit 10.5 to the registrant’s Form 8-K filed on November 9, 2009.

10.6*		Indemnity Agreement with Steven J. Bilodeau, Peter Dicks, Timothy P. Craig, Ivan T. Fritsch, James A. Donohue, Andrew M. Caggia, Christine King, Stephen C. McCluski, Dr. Kenneth Kin, Walter Siegel, David S. Smith, Joseph S. Durko, Dr. Guenter Reichart, Richard Steinle, and Kris Sennesael incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on November 23, 2005.

10.7*		Letter Agreement with Walter Siegel dated as of November 3, 2009 incorporated by reference to Exhibit 10.3 to the registrant’s Form 8-K filed on November 9, 2009.

10.8*		Letter Agreement with David Coller dated February 4, 2009 incorporated by reference to Exhibit 10.8 to the registrant’s Form 10-K filed on April 28, 2010.

10.9*		Amendment to Letter Agreement with David Coller dated February 4, 2009 incorporated by reference to Exhibit 10.9 to the registrant’s Form 10-K filed on April 28, 2010.

10.10*		Term Sheet for Relocation of Dave Coller incorporated by reference to Exhibit 10.10 to the registrant's Form 10-K filed on April 28, 2010.

10.11*		Letter Agreement with Roger Wendelken dated May 26, 2009 incorporated by reference to Exhibit 10.11 to the registrant’s Form 10-K filed on April 28, 2010.

10.12*		Amendment to Letter Agreement with Roger Wendelken dated May 26, 2009 incorporated by reference to Exhibit 10.12 to the registrant’s Form 10-K filed on April 28, 2010.

10.13*		Standard Microsystems U.S. Domestic Employee Relocation Benefits Guide, Executive Program, December 2011, incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed on December 8, 2011.

10.14*		Form of Sales Incentive Plan for Roger Wendelken for fiscal year 2012 and subsequent years incorporated by reference to the registrant's Form 8-K filed on April 15, 2011.

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10.15*		1994 Director Stock Option Plan, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated May 31, 1995.

10.16*		2001 Director Stock Option Plan, incorporated by reference to Exhibit B to the registrant’s Proxy Statement dated July 11, 2001.

10.17*		Amendment to the 2001 Director Stock Option Plan, dated April 4, 2002, incorporated by reference to Exhibit 10.7 to the registrant’s Form 10-K for the fiscal year ended February 28, 2002.

10.18*		Amendment to the 1994 Director Stock Option Plan, adopted July 14, 1998, incorporated by reference to information appearing on page 11 of the registrant’s Proxy Statement dated June 1, 1998.

10.19*		Retirement Plan for Directors, incorporated by reference to Exhibit 10.14 to the registrant’s Form 10-K for the fiscal year ended February 28, 1995.

10.20*		Amendment to the Retirement Plan for Directors, incorporated by reference to Exhibit 10.11 to the registrant’s Form 10-K for the fiscal year ended February 28, 2002.

10.21*		1993 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated May 25, 1993.

10.22*		2005 Supplemental Executive Retirement Plan, amended and restated as of January 1, 2008 incorporated by reference to Exhibit 10.1 to the registrants’ Form 8-K filed on November 7, 2008.

10.23*		Amendment No. 1 to the Standard Microsystems Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on November 9, 2009.

10.24*		Amendment No. 2 to the Standard Microsystems Corporation Supplemental Executive Retirement Plan incorporated by reference to Exhibit 10.22 to the registrant’s Form 10-K filed on April 28, 2010.

10.25*		Standard Microsystems Corporation Executive Severance Plan amended and restated as of November 3, 2009 incorporated by reference to Exhibit 10.23 to the registrant’s Form 10-K filed on April 28, 2010.

10.26*		Resolutions adopted October 31, 1994, amending the Retirement Plan for Directors and the Executive Retirement Plan, incorporated by reference to Exhibit 10.18 to the registrant’s Form 10-K for the fiscal year ended February 28, 1995.

10.27*		1994 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated May 26, 1994.

10.28*		Resolutions adopted January 3, 1995, amending the 1994, 1993 and 1989 Stock Option Plans and the 1991 Restricted Stock Plan, incorporated by reference to Exhibit 10.19 to the registrant’s Form 10-K for the fiscal year ended February 28, 1995.

10.29*		1996 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s proxy statement dated June 21, 1996 for Officers and Key Employees.

10.30*		1998 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated June 1, 1998.

10.31*		1999 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated June 9, 1999.

10.32*		2000 Stock Option Plan for Officers and Key Employees, incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated June 6, 2000.

10.33*		2001 Stock Option and Restricted Stock Plan for Officers and Key Employees, incorporated by reference to Exhibit C to the registrant’s Proxy Statement dated June 11, 2001.

10.34*		Resolutions adopted April 7, 2004, amending the 1999 and 2000 Stock Option Plans and the 2001 and 2003 Stock Option and Restricted Stock Plans, incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q for the quarterly period ended August 31, 2004.

10.35*		Standard Microsystems Corporation Plan for Deferred Compensation in Common Stock for Outside Directors as amended and restated, effective May 22, 2009 incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q filed on July 7, 2009.

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10.36*		2002 Inducement Stock Option Plan, incorporated by reference to Exhibit 10.26 to the registrant’s Form 10-K for the fiscal year ended February 28, 2003.

10.37*		2003 Director Stock Option Plan, incorporated by reference to Exhibit C to the registrant’s Proxy Statement dated July 9, 2003.

10.38*		2003 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit B to the registrant’s Proxy Statement dated July 9, 2003.

10.39*		2003 Inducement Stock Option Plan, incorporated by reference to Exhibit 4.3 to the registrant’s Form S-8 filed September 15, 2003.

10.40*		2004 Employee Stock Appreciation Rights Plan, incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on October 1, 2004.

10.41*		2004 Inducement Stock Option Plan, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 filed on July 17, 2005.

10.42*		2005 Director Stock Appreciation Rights Plan, incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q filed on October 11, 2005.

10.43*		2005 Inducement Stock Option and Restricted Stock Plan of Standard Microsystems Corporation, as amended on September 9, 2005, incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed on October 26, 2005.

10.44*		The amendment of the 1993 Stock Option Plan for Officers and Key Employees, 1994 Stock Option Plan for Officers and Key Employees, 1996 Stock Option Plan for Officers and Key Employees, 1998 Stock Option Plan for Officers and Key Employees, 1999 Stock Option Plan for Officers and Key Employees, 2000 Stock Option Plan for Officers and Key Employees, 2001 Stock Option and Restricted Stock Plan of Standard Microsystems Corporation, 2003 Stock Option and Restricted Stock Plan and 2005 Inducement Stock Option and Restricted Stock Plan of Standard Microsystems Corporation incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q filed on December 21, 2007.

10.45*		Standard Microsystems Corporation 2006 Directors Stock Appreciation Rights Plan, as amended and restated on June 1, 2009, incorporated by reference to Exhibit 10.1 to the registrant’s 10-Q filed on July 7, 2009.

10.46*		2006 Employee Stock Appreciation Rights Plan, as adopted on September 1, 2006, incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on September 1, 2006.

10.47*		Amendment to Standard Microsystems Corporation 2006 Employee Stock Appreciation Rights Plan, incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed on April 30, 2008.

10.48*		April 9, 2007 Amendment to the 2005 Inducement Stock Option and Restricted Stock Plan of Standard Microsystems Corporation incorporated by reference to Exhibit 10.38 to the registrant’s Form 10-K filed on April 30, 2007.

10.49*		Amendment to 2005 Inducement Stock Option Plan and Restricted Stock Plan of Standard Microsystems Corporation, incorporated by reference to Exhibit 10.3 to the registrant’s Form 8-K filed on April 30, 2008.

10.50*		Standard Microsystems Corporation 2009 Long Term Incentive Plan incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q filed on September 30, 2011.

10.51*		Form of stock option agreement for the Standard Microsystems 2009 Long Term Incentive Plan incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on July 14, 2009.

10.52*		Form of restricted stock unit agreement for the Standard Microsystems Corporation 2009 Long Term Incentive Plan incorporated by reference to Exhibit 10.7 to the registrant’s Form 10-Q filed on January 7, 2010.

10.53*		Resolution adopted to modify compensation provided to non-employee directors, dated December 21, 2004, incorporated by reference to Item 1.01 in the registrant’s Form 8-K filed on December 23, 2004.

10.54		Standard Microsystems Corporation Selected Officer Management Incentive Plan, amended and restated effective September 29, 2010, incorporated by reference to the registrant’s Form 10-Q filed on October 5, 2010.

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10.55*		Standard Microsystems Corporation Management Incentive Plan, amended and restated effective September 29, 2010, incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q filed on October 5, 2010.

10.56		Agreement and Plan of Merger among Standard Microsystems Corporation, SMSC Sub, Inc., and Gain Technology Corporation, dated April 29, 2002, incorporated by reference to Exhibit 2.1 to the registrant’s Form 8-K filed on June 19, 2002.

10.57		Share Purchase Agreement by and among Standard Microsystems Corporation, SMSC GmbH and the Shareholders of OASIS Silicon Systems Holding AG, dated March 30, 2005, incorporated by reference to Exhibit 2.1 to the registrant’s Form 8-K filed on April 5, 2005.

10.58		Agreement and Plan of Merger, by and among Standard Microsystems Corporation, Comet Acquisition Corp., BridgeCo, Inc. and BCOA Nominees Limited, as Rights Holder Representative, dated as of May 19, 2011 incorporated by reference to Exhibit 2.1 to the registrant’s Form 8-K filed on May 20, 2011.

10.59*		Compensation of Dr. Guenter Reichart, Director, as reflected in the registrant’s Form 8-K filed on September 27, 2011.

10.60		Assignment and Assumption of Lease Agreement between Standard Microsystems Corporation and Rep 80 Arkay Drive, LLC dated as of August 16, 2011 incorporated by reference to exhibit 2.1 to the registrant’s Form 8-K filed August 18, 2011.

21.		Subsidiaries of the Registrant filed herewith.

23.1		Consent of PricewaterhouseCoopers LLP, filed herewith.

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, filed herewith.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, filed herewith.

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Linkbase Document

*	Indicates a management or compensatory plan or arrangement.

Delaware		11-2234952
(State of Incorporation)		(I.R.S. Employer Identification Number)

80 Arkay Drive		11788-3728
Hauppauge, New York
(Address of Principal Executive Offices)		(Zip Code)

	Title of Each Class		Name of Each Exchange on Which Registered
	Common Stock, $.10 par value		The NASDAQ Global Select Market*

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Item 1.	Business	1
	General Description of the Business	1
	Strategy	1
	Markets	2
	Principal Products	3
	Sales, Marketing and Customer Service	5
	Geographic Information	6
	Backlog and Customers	6
	Manufacturing, Assembly and Test	7
	Raw Materials	7
	Research and Development	8
	Intellectual Property	8
	Business Combinations and Other Non-Controlling Equity Investments	8
	Employees	9
	Competition	10
	Seasonality	10
	Available Information	11

Item 1A.	Risk Factors	11

Item 1B.	Unresolved Staff Comments	18

Item 2.	Properties	19

Item 3.	Legal Proceedings	19

Item 4.	Mine Safety Disclosures	19

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19

Item 6.	Selected Financial Data	22

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 8.	Financial Statements and Supplementary Data	40

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40

Item 9A.	Controls and Procedures	40

Item 9B.	Other Information	41

Item 10.	Directors, Executive Officers and Corporate Governance

Item 11.	Executive Compensation

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.	Certain Relationships, Related Transactions and Director Independence

Item 14.	Principal Accountant Fees and Services

SIGNATURES		42

Location	Activities	Approximate Square Footage	Lease Expiration
Austin, Texas	Engineering, Logistics, Marketing & Sales	63,138	June 30, 2019
Karlsruhe, Germany	Engineering, Logistics, Marketing & Sales	39,826	June 30, 2013
Bangalore, India	Engineering	17,263	October 14, 2015
Phoenix, Arizona	Engineering & Marketing	17,227	March 31, 2013
Tucson, Arizona	Engineering, Marketing	16,000	July 31, 2020
Chennai, India	Engineering	13,913	May 31, 2019
Bangalore, India	Engineering	8,813	December 31, 2012
Taipei, Taiwan	Logistics, Marketing & Sales	7,543	December 30, 2014
Sofia, Bulgaria	Engineering	7,388	March 31, 2015
Hong Kong	Logistics and Sales	6,892	May 31, 2013
Pforzheim, Germany	Engineering	5,651	February 28, 2022
Irvine, California	Engineering & Marketing	5,475	August 31, 2017
Amsterdam, The Netherlands	Engineering	4,230	October 31, 2012

	Fiscal 2012				Fiscal 2011
	High		Low		High		Low
First Quarter	$	27.83	$	22.67	$	27.85	$	19.67
Second Quarter	$	27.78	$	19.02	$	25.55	$	17.80
Third Quarter	$	25.83	$	17.98	$	27.39	$	18.31
Fourth Quarter	$	27.52	$	23.15	$	30.40	$	23.33

As of February 28 or 29,	2007		2008		2009		2010		2011		2012

Standard Microsystems Corporation	$	100.00	$	99.23	$	54.50	$	68.32	$	92.86	$	89.57
NASDAQ Composite	$	100.00	$	91.29	$	57.77	$	94.42	$	118.63	$	123.62
PHLX Semiconductor	$	100.00	$	91.20	$	61.63	$	94.23	$	121.55	$	135.12

As of February 28 or 29, and for the Fiscal Years Then Ended	2012			2011			2010			2009			2008
	(in thousands, except per share data)
Operating Results:
Product sales	$	407,029		$	407,396		$	307,068		$	316,383		$	365,671
Intellectual property and other revenues		5,075			2,083			710			9,113			12,178
Total sales and revenues		412,104			409,479			307,778			325,496			377,849
Costs of goods sold		196,446			194,585			154,872			163,861			186,024
Gross profit		215,658			214,894			152,906			161,635			191,825
Research and development		100,350			96,370			77,702			74,169			71,660
Selling, general and administrative		86,706			100,661			85,049			88,123			82,517
Acquisition termination fee gain		-			(7,700	)		-			-			-
Restructuring charges		1,973			4,703			2,123			5,197			-
Impairment of goodwill		-			-			-			52,300			-
Impairment loss on equity investment (Symwave)		-			3,208			-			-			-
Gain on equity investment (Canesta)		-			(320	)		-			-			-
Revaluation of contingent acquisition liabilities		(1,365	)		(4,206	)		-			-			-
Impairment losses on intangible assets (Symwave)		-			3,531			-			-			-
Settlement charge		-			-			2,019			-			-
Income (loss) from operations		27,994			18,647			(13,987	)		(58,154	)		37,648
Other income, net		232			258			304			7,556			5,690
Net income (loss)	$	10,662		$	10,627		$	(7,978	)	$	(49,409	)	$	32,906
Diluted net income (loss) per share	$	0.46		$	0.46		$	(0.36	)	$	(2.22	)	$	1.39
Diluted weighted average common shares outstanding		23,203			23,108			22,133			22,232			23,623
Balance Sheet and Other Data:
Cash, cash equivalents and short-term investments	$	147,054		$	170,387		$	139,641		$	97,156		$	61,641
Long-term investments	$	25,680		$	29,490		$	42,957		$	69,223		$	124,469
Working capital	$	166,827		$	205,739		$	171,337		$	145,886		$	118,849
Total assets	$	513,986		$	539,092		$	479,336		$	429,686		$	539,476
Long-term obligations	$	21,001		$	21,869		$	22,944		$	15,625		$	15,992
Shareholders’ equity	$	394,367		$	396,907		$	361,888		$	348,808		$	436,089
Book value per common share	$	17.73		$	17.27		$	16.16		$	15.91		$	19.14
Capital expenditures	$	11,706		$	12,396		$	8,616		$	17,883		$	13,263
Depreciation and amortization	$	30,424		$	25,518		$	25,354		$	22,346		$	20,370

	2012			2011			Inc./Dec. $		Inc./Dec. %
Sales and revenues	$	412,104		$	409,479		$	2,625		0.6	%
Gross profit	$	215,658		$	214,894		$	764		0.4	%
Gross profit as percentage of sales and revenues		52.3	%		52.5	%
Operating income	$	27,994		$	18,647		$	9,347		50.1	%
Operating income as percentage of sales and revenues		6.8	%		4.6	%
Net income	$	10,662		$	10,627		$	35		0.3	%

For the Fiscal Years Ended February 28,	2011			2010			Inc./Dec. $			Inc./Dec. %
Gross profit on sales and revenues	$	214,894		$	152,906		$	61,988			40.5	%
Gross profit as percentage of sales and revenues		52.5	%		49.7	%
Operating expenses:
Research and development	$	96,370		$	77,702		$	18,668			24.0	%
Selling, general and administrative		100,661			85,049			15,612			18.4	%
Acquisition termination fee gain		(7,700	)		-			(7,700	)		N/M	*
Restructuring charges		4,703			2,123			2,580			N/M	*
Impairment loss on equity investment (Symwave)		3,208			-			3,208			N/M	*
Gain on equity investment (Canesta)		(320	)		-			(320	)		N/M	*
Revaluation of contingent acquistion liabilities		(4,206	)		-			(4,206	)		N/M	*
Impairment loss on Symwave intangible assets (Symwave)		3,531			-			3,531			N/M	*
Settlement charge		-			2,019			(2,019	)		N/M	*

Income (loss) from operations	$	18,647		$	(13,987	)	$	32,634			N/M	*
*N/M – Not meaningful

	Payment Obligations by Period
	Total		Within 1 Year		Between 1 and 3 Years		Between 3 and 5 Years		Therafter
Operating leases	$	19,962	$	4,569	$	5,885	$	4,252	$	5,257
Other obligations		20,789		8,681		6,312		1,352		4,444
Inventory and other purchase commitments		14,152		14,152		-		-		-
Contingent consideration on acquisitions		4,251		4,251		-		-		-
Total	$	59,154	$	31,653	$	12,197	$	5,604	$	9,701

	Fiscal 2012					Fiscal 2011
	Amount		%			Amount		%
PC	$	131,132		31.8	%	$	151,595		37.0	%
Consumer Electronics		129,451		31.4	%		110,265		26.9	%
Industrial		66,924		16.3	%		72,816		17.8	%
Automotive		84,597		20.5	%		74,803		18.3	%
Total sales and revenues	$	412,104		100.0	%	$	409,479		100.0	%